THE MONEY PROBLEM. 
 
 By Arthur Kitson. 
 (8vo. 3>.6J.) New Edition in Press 
 
 " Here is a book which disturbs classifications, which is unorthodox, which 
 gets aside some very widely-received opinions as of little worth, and which 
 presents its own side of certain vital questions with a persistency and logical 
 Force from which it is hard for an unprejudiced reader to escape. . . . The 
 end and aim of Mr. Kitson's whole argument is to build up a theory of money 
 upon the lines of a purely mathematical induction. He follows Prof. Jevons 
 In the endeavour to show that all the terms with which Political Economy 
 deals involve the consideration of QUANTITIFS. But he diverges from 
 Jevons at the point where the latter becomes illogical ; for indeed it is illogical 
 to define value as a ' ratio of exchange,' and then to talk about a ' standard 
 unit of value.' It is manifest that we cannot have a ' standard unit ' of a 
 ' ratio.' The notion that such a thing is possible is responsible for the theory 
 that gold and silver can be at once a standard of value and a medium of ex- 
 change. When economists get rid of that theory, the community will get 
 rid of panics not before. ' Values are ideal creations, and can only be 
 properly expressed in terms of the ideal numbers.' Such is Mr. Kitson's 
 remarkable announcement, and it is one which entitles him to a front rank 
 in Economic discussion. His volume will be pooh-poohed by the orthodox 
 
 eilosophers, and all the fogies will hold up their hands in horror. But Mr. 
 Itson has got hold of the truth, and his theory cannot be permanently sub- 
 verted. ... He has only to wait until education shall bring men up to his 
 own level of thought, and so make it possible to conform practice to theory." 
 Extract from Review of American Edition by the Evening Bulletin, Phila- 
 delphia. 
 
 " I can say with much pleasure that the presentation of Political Economy 
 in the first few chapters is masterly. It is the best Economic book, the fullest, 
 deepest, and truest I have ever seen." ROBERT BLATCHFORD, Editor 
 of Clarion. 
 
 " Jevons and others have pointed out the theoretic advantage of founding 
 credit-money on a basis of general commodities. But Mr. Kitson has cer- 
 tainly given a very able exposition of what we may term the theoretic practica- 
 bility of such a system. His principles are thus summarised (p. 181) : First, 
 Bank-notes should be issued against wealth and not against debt ; Second, 
 Banks should not undertake obligations which they cannot always perform ; 
 Third, Banks should be established and operated for the convenience and 
 assistance of commerce, not for enriching bankers and shareholders.' . . . 
 The most interesting part of Mr. Kitson's argument is his insistence that 
 money has by right no other function than that of exchange. You may 
 insure your instruments of exchange in any way you like, but that insurance 
 is not money. A currency based on commodities is, he urges, the only sound 
 sufficient currency ; its free issue would break the power of money-brokers 
 and bankers and would secure a community against injurious fluctuations of 
 value due to excesses or shortages of gold or any other artificially selected 
 basis. The dangers of our existing unregulated credit systems are, however, 
 very real, and Mr. Kitson is correct in attributing panics in large measure to 
 the narrowness of the gold basis." Extract from Review by Westminster 
 Gazette, London. 
 
 " I venture to assert that your book was far easier reading for me than most 
 economists. The fact is, my own mind has been marching along your own 
 line of thought regarding the economics of money for four years, and the 
 service of your book lay mainly in enabling me to advance along a smooth 
 highway instead of cutting my way through a jungle. I have come to the 
 conclusion that money is a common denominator of value, expresses ratios 
 instead of measuring utility, and needed no material base. I have not, 
 however, been able to carry out that principle across the entire field of money 
 doctrine and reshape the doctrine of all the special branches in accordance 
 with it. This you have been able to do, and in thus making the science of 
 money fairly complete and self-consistent from the outset you have, it seems 
 to me, established a claim to recognition much greater than others (like 
 myself) who" have caught a glimmer or detected the bottom principle, but 
 who have not had the analytic power to reorganize their entire body of doc- 
 trine and make it a self-consistent whole. Your illustrations, also, are new 
 and extremely helpful. I confess your treatment of Gresham's law was an 
 ' eye-opener ' to me." PROFESSOR E. A. ROSS, Leland, Stanford University, 
 California. 
 
 PROFESSOR JOHN KELLY, Ph.D. (of Pittsfleld, Mass., U.S.A.), write* 
 concerning this book : " I congratulate you upon having written the bet 
 work on Currency In the English if not in any language." 
 
An Open Letter to the Right Hon. David 
 Lloyd-George, Chancellor of the Exchequer, 
 on the Cause of Strikes. 
 
 (By Arthur Kitson, President of the B. 6- C. Reform League.) 
 
 The Daily Herald, of London, of July 23, 1912, says : 
 BANK MONOPOLY AND THE GREAT UNREST. 
 
 We have endeavoured more than once to present and to trace the inti- 
 mate connexion between our present bank monopoly system and the great 
 unrest. As a cardinal cause of existing evils and anomalies and of the well- 
 founded industrial insurrection in our midst, it has been no easy matter to 
 make this clear, in view of the complex and confusing side issues which 
 party warfare so constantly conjures up. It is all the more pleasing to us, 
 then, in face of the difficulties, to have lighted upon a document which 
 serves to confirm, in a most remarkable degree and with no uncertain voice, 
 all our strictures, even the most outspoken and apparently daring, upon this 
 all- vital question to the workers. 
 
 A MERCILESS INDICTMENT. 
 
 The document we allude to, which has come into our hands since writing 
 the foregoing articles, is an " Open Letter to the Right Hon. David Lloyd 
 George, Chancellor of the Exchequer, on the causes of Strikes and Bank 
 Failures." It is written by one who is manifestly a master of his subject, 
 and by one, moreover, who possesses that rare quality nowadays of an un- 
 flinching moral courage. His indictment of our entirely irrational system 
 is as clear as it is uncompromising, and his remedy in the direction of reform 
 is, save in one important point, the same as our own. 
 A PERSONAL EXPERIENCE. 
 
 He opens up his impeachment with the story of an illuminating experience, 
 and one, since it embodies the impressions of a non-Briton, every citizen of 
 this kingdom in reading it should take to heart. The incident very appro- 
 priatelyfctook place on the terrace of the House of Commons. The author 
 of the book referred to, Mr. Arthur Kitson, found himself among a group of 
 public men discussing the causes of present upheavals throughout the labour 
 world. The company, representing a variety of views, declared each his 
 own remedy one after the other in reply to the question propounded as to 
 what reform our nation was in most need. One said, " Tariff Reform," 
 another " Franchise Reform," another " Female Suffrage," another " the 
 Single Tax," another " Right to Work," while yet another declared In favour 
 of " Home Rule " I The question was then put to the distinguished stranger, 
 a well-known American writer, and his remarks were " so unusual, and created 
 so much astonishment, that one of the group carefully noted his remarks In 
 shorthand," and these we welcome and gladly reproduce as Mr. Kitson prints 
 them. . . . 
 
 THE PESTILENTIAL BLIGHT. 
 
 Mr. Arthur Kitson's little book is remarkable in many ways. In his 
 researches into the causes of industrial unrest he has evidently delved deeply 
 Into masses of authorities. He recognizes fully, as we do, the vitiated system 
 of bank monopoly which hangs over our commerce, our trade, our industry, 
 like a pestilential blight. 
 
 The difficulties and dangers created by the fatal characters, insecurity of 
 our banks under that abiding and extending despotism, the consequent trade 
 fluctuations, the Impossibility of our bankers to keep pace with the forward 
 march of our industries, omnipotence of financiers and the ignorance of legis- 
 latorsall these points, on which we ourselves have so carefully dwelt, come 
 under the lash of his unsparing censure. 
 
 He is obviously, like ourselves, bent on bringing about the great Bank 
 Reform. He sees clearly how these mighty impediments, set up in the past 
 by the famous Whig Syndicate and maintained to-day by the Bank of Eng- 
 land, are not only spreading ruin among the small producers, traders and 
 workers, but imperilling England's future among the nations," 
 
TRADE FALLACIES 
 
TRADE FALMqiES 
 
 Qf/fc* /: 
 
 A CRITICISM OF EXISTING 
 
 SUGGESTIONS FOR A 
 
 r <9 
 TOWARDS NATIONAL '$ 
 
 PROSPERITY 
 
 By 
 
 ARTHUR KITSON 
 
 Author oi " The Money Problem," etc., etc. 
 
 WITH x PRKFACB BY 
 
 FRANCIS STOPFORD 
 
 Editor of "Land and Water" 
 
 LONDON 
 
 P. S. KING & SON, LTD. 
 ORCHARD HOUSE, WESTMINSTER 
 1917 
 
PREFACE 
 
 As I write, the revolution in Russia is the topic 
 on every one's tongue. By the great majority in 
 this country, the end of the Romanoff despotism 
 has been regarded as sudden and surprising ; it 
 had endured for so many centuries that it 
 appeared impossible it could be finished in the 
 inside of a week. But the few who had studied 
 attentively Russian political and social life are 
 aware the abdication was only the final deed in a 
 course of action which had extended over two 
 generations and more, and for which much blood 
 had been shed, many tears had flowed and sacri- 
 fice of life and liberty had been willingly offered 
 up. A revolution are the short birth-pangs of a 
 new era ; but the heavy weariness and pain of 
 gestation has lasted previously for a long period 
 of time. Students of Kipling will remember 
 that beautiful poem in his History of England 
 entitled " The Dawn Wind." The last verse, so 
 prophetic of these times, may be quoted here : 
 
 So when the world is asleep, and there seems no hope of 
 
 her waking 
 Out of some long bad dream that makes her mutter 
 
 and moan, 
 
 Suddenly, all men arise to the noise of fetters breaking, 
 And every one smiles at his neighbour, and tells him 
 his soul is his own. 
 
 But it may be asked, what has this to do with 
 v 
 
vi PREFACE 
 
 Mr. Arthur Kitson's essays on Trade Fallacies * 
 Just this. There are other despotisms than auto- 
 cracy ; trade and currency have their own forms 
 of absolutism which fetter freedom and compel 
 adherence to false ideals. Whether we like it 
 or not, we have to recognize these are the days 
 that precede revolution for all the peoples. Man- 
 kind stretches out its hands in the blinding mists 
 of blood and tears, and cries aloud to be led 
 up to nobler heights through the roar and fog of 
 battle. Not yet can we gauge the forces that have 
 been freed in this world struggle. But we hear 
 the word " reconstruction " on every lip, though 
 seldom is it recognized that there can be no sound 
 reconstruction without demolition. The site has 
 to be cleared of the rubble that has accumu- 
 lated during the years of peace ; new foundations 
 have to be dug, and more deeply, if the future 
 social fabric is to be fairer and stronger than the 
 one whose place it is to take. 
 
 Land and Water under the present proprietary 
 recognized this essential truth, and without 
 committing itself definitely to the acceptance of 
 the actual opinions expressed, has willingly 
 opened its columns to those who can put forth 
 bold views lucidly and sincerely on subjects 
 with which they are familiar. I have before me 
 a letter from a most cultured essayist, a student 
 of human nature. He writes : " One of the 
 great lessons of the war, I think, is that it enables 
 us for the time being to get away from our custom- 
 ary prepossessions, and take a calm view of 
 them. But this involves a good deal of what 
 Sidney Smith called ' speaking disrespectfully 
 
PREFACE vii 
 
 of the equator ' and that is a thing some people 
 cannot stand. That Land and Water can stand it 
 is a good augury, and I do not think it will be 
 found a misfortune." 
 
 Mr. Kitson never troubles himself about the 
 susceptibilities of the Equator ; those who are 
 satisfied that British currency and banking, and 
 her trading and industrial conditions are all that 
 they should be, will be well advised to forswear 
 this volume, for their prepossessions will be 
 shocked. But when as Editor of Land and Water 
 it fell to my lot to decide whether these articles 
 should be printed in its columns, two outstanding 
 facts presented themselves : (1st) Mr. Kitson's 
 views closely coincided with those I had heard 
 expressed by every British trader of enterprise 
 and originality ; (2nd) the opinions were set 
 out in such clear and straightforward lan- 
 guage, that a subject, usually regarded as too 
 technical and dull for a journal that caters for 
 general readers, became not only comprehensible 
 but always interesting and often fascinating. 
 Since the articles were published, events have 
 moved rapidly. No one now disputes that British 
 banking methods have to be materially altered 
 in so far as external trade is concerned. Gold 
 currency to-day is a farce, in regard to our internal 
 trade ; the business of the country is conducted 
 on a paper currency. 
 
 Moreover, Government is aw r ake to the truth 
 that it is possible by " peaceful penetration " for 
 an enemy to gain such economic power over 
 a nation, as given time and opportunity will 
 enable it to throttle the life out of its rival with 
 
viii PREFACE 
 
 the least display of military force. Were it 
 possible to visualize the peril from which the 
 British Empire so closely escaped in 1914, there 
 is not a man or woman in the land who would 
 not, sick with horror, wonder whether it were 
 a Divine decree that compelled Germany to 
 declare war when she did, and not to wait for 
 another ten years. Even yet the peril is not 
 wholly over ; the submarine menace threatens 
 our food supplies. As Midas besought the gods 
 that everything he touched should be turned 
 into gold, so we prayed that everything we re- 
 quired should be at the cheapest price possible. 
 We are learning the costliness of cheapness-at- 
 any-cost to-day, much in the same way as Midas 
 discovered his folly. 
 
 A bond of sympathy between Mr. Kitson and 
 the writer of this Preface has been an equal ad- 
 miration of Ruskin. Ruskin wrote foolishly on 
 the subject of factories and machinery, especially 
 machinery. But his point of view is intelligible. 
 Taking his stand on the cold-blooded theories 
 piled together by Mill and other writers, he en- 
 visaged machinery as the Moloch to which 
 humanity was to be sacrificed by the followers of 
 the false laws of political economists. He did 
 not recognize that the difference between a steam - 
 tractor and a plough or an American reaper- and- 
 binder and a sickle is only one of degree, that 
 each is constructed for the service of man ; but 
 he did see clearly when all around him were 
 blind that the human element must ever be the 
 decisive factor in all enterprise, and that it can 
 never be eliminated. This eternal truth has been 
 
PREFACE ix 
 
 drummed into our heads by the big guns of 
 battle. Multiply the engines of destruction as 
 we will, yet victory or defeat in the ultimate 
 issue can only be decided by man. 
 
 " It is the law of good economy to make the 
 best of everything. How much more to make 
 the best of every creature ! " So Ruskin spoke in 
 a lecture on " The Future of England " delivered 
 in 1869. And again : " All land that is waste 
 and ugly, you must redeem into ordered fruitful- 
 ness ; all ruin, desolateness, imperfectness of 
 hut or habitation, you must do away with ; and 
 throughout every village and city of your English 
 dominion, there must not be a hand that cannot 
 find a helper, nor a heart that cannot find a com- 
 forter." Formerly these were regarded as mere 
 beautiful words, but to-day who will deny that 
 they embody not only a truth, but a vital 
 economic truth ? 
 
 In the course of a recent letter Mr. Kitson 
 wrote to me in these terms : 
 
 " From my earliest days since I began the study 
 of economics I have been convinced that orthodox 
 economics as taught in our schools and colleges is 
 founded on a gross fallacy. I have always been a 
 believer in the unity and harmony of science. I 
 cannot imagine one branch of human knowledge 
 in its development deliberately contradicting 
 another branch. The whole science of political 
 economy has been avowedly opposed to all moral 
 considerations, and writers like Mill, Cairns and 
 even the late Professor Smart have not hesitated 
 to say so. In the little work I have done in this 
 direction I have aimed particularly to expose the 
 crudities and unscientific character of economic 
 ' science ' and have striven to lay the basis of a science 
 
x PREFACE 
 
 that will harmonize with other branches of know- 
 ledge, and particularly with the science of ethics. 
 I mention this because it is at this point that I 
 differ with many other writers, and even with Pro- 
 fessor Hobson, although he has been working in 
 this direction for years. I consider that Ruskin 
 was one of the greatest economic writers that this 
 country has produced, and we shall have to follow 
 his rules and teachings to a considerable extent in 
 the future if we are to succeed in building up our 
 trade and industries on a satisfactory basis." 
 
 Remember these are the deeply considered 
 opinions of a man in the prime of life, who has 
 been engaged in industry over thirty years here 
 and in the United States, is a manufacturer and 
 an employer of labour, and is the son and the 
 grandson of manufacturers and employers of 
 labour. The last essay in this volume on the 
 psychology of the workshop represents at the 
 present time not only the opinion of the writer of 
 it, but, I believe, of many hard-headed and 
 level-minded employers of labour throughout 
 the kingdom. 
 
 "It is as though civilization were standing 
 to-day in the twilight of dawn. As the mists 
 lift and earth shows forth more plainly, the 
 heavens seem to recede, and the stars fade from 
 sight, so that there comes to the watcher a strong 
 temptation to deny in that moment the reality 
 of the heavens. But he need only wait for the 
 light to grow stronger for them again to become 
 visible." So I wrote six years ago and the words 
 seem already to have come true. Never have the 
 eternal principles of freedom, justice and 
 humanity shone forth more clearly, and never 
 
PREFACE xi 
 
 have men been more determined to make this 
 earth a nearer resemblance to the heaven whose 
 existence they have denied because of the needless 
 misery around them. But this revolution will 
 not be accomplished in a day, or without effort 
 of mind and body. It is books like the present 
 volume that help it forward, and stimulate and 
 concentrate men's thoughts on the gigantic work 
 of reconstruction that lies ahead of us. 
 
 FRANCIS STOPFORD. 
 
 " LAND AND WATER " OFFICE, 
 5 CHANCERY LANI, W.C.2. 
 March 25, 1917. 
 
 
AUTHOR'S NOTE 
 
 THE publication of the following articles in book 
 form which appeared in Land and Water dur- 
 ing the past two years is due to the numerous 
 requests from the readers of that well-known 
 periodical. 
 
 I have to record my thanks to the proprietors 
 of Land a-nd Water for permission to reproduce 
 these articles. Since they were published in 
 that journal they have been revised and in some 
 cases added to. As they were written under the 
 circumstances prevailing at the time, and as 
 these circumstances have often changed con- 
 siderably in the wild whirlpool of war in which we 
 live, it has seemed advisable not to attempt 
 to bring them up to date ; it would frequently 
 weaken arguments and dull the edge of current 
 analogy, so I have attached to each chapter the 
 date of original publication. 
 
 A. K. 
 
 STAMFORD, 
 
 March 22, 1917. 
 
CONTENTS 
 
 CHAP. PAGE 
 
 I THE PSYCHOLOGICAL FACTOR . . 1 
 
 II THE FINANCIAL FACTOR . . .15 
 
 III CAPTURING GERMAN TRADE . . 39 
 
 IV ENGLAND'S BANKING SYSTEM . . 59 
 V THE LONDON GOLD MARKET . . 73 
 
 VI WAR AND THE BANKERS ... 87 
 
 VII THE GOLD FETISH . . . .103 
 
 VIII INADEQUACY OF OUR BANKS . . 121 
 
 IX TOWARDS A BETTER BANKING SYSTEM 139 
 
 X TREASURY NOTES . . . .155 
 
 XI GERMAN TRADE METHODS . . .173 
 
 XII NEW STEPS IN ECONOMIC REFORM . 187 
 
 XIII LABOUR, CAPITAL AND THE STATE . 197 
 
 XIV PROPERTY AND THE STATE . . 215 
 XV THE COMING TRADE WAR . . .231 
 
 XVI STATE CONTROL OF INDUSTRIES . . 249 
 
 XVII PSYCHOLOGY OF THE WORKSHOP 265 
 
 T.F. XV 
 
THE PSYCHOLOGICAL FACTOR 
 
CHAPTER I 
 
 (December 4th, 1915) 
 
 THE PSYCHOLOGICAL FACTOR 
 
 WHEN the complete history of the Great 
 War comes to be written, the historian will 
 be confronted with some rather puzzling 
 problems. For example, why have the 
 Allies made so little effort to counteract the 
 enemy's influence in neutral countries ? 
 Why have they so completely failed to 
 employ the psychological factor against 
 the enemy, whilst the enemy has employed 
 it in neutral countries with such skill and 
 success against the Allies ? Why have the 
 Allies been so negligent of the strongest 
 weapon they possessed ? 
 
 When the war started, the Allies were 
 as all the world now knows entirely un- 
 prepared to cope with the gigantic on^ 
 slaught of the German armies, which long 
 years of work and preparation had made 
 
4 THE PSYCHOLOGICAL FACTOR 
 
 irresistible. But what they lacked in men 
 and munitions they gained in the moral 
 strength and justice of their cause. Never 
 since wars began has the righteousness of 
 a cause been more conspicuous^ or more 
 one-sided. The Allies held the trump cards. 
 Their cause was that of the whole world 
 apart from that of the aggressors. 
 Ranged on the side of Great Britain, 
 France, and Russia, stood Civilization, 
 Liberty, Chivalry and everything that man- 
 kind aspires to freedom from bondage 
 and oppression, the right of all nations to 
 live their own individual lives, to speak 
 and read in their own native tongue, to 
 worship according to their own particular 
 faith. All the natural aspirations of the 
 vast majority of the world's inhabitants 
 appeared to be centred in the victory of 
 the Allies. 
 
 NEUTRAL INDIFFERENCE 
 
 Had any one predicted sixteen months 
 ago the course the war has since taken 
 and the present attitude of the various 
 nations, the most incredible part of the 
 
THE PSYCHOLOGICAL FACTOR 5 
 
 predictions would have been the apparent 
 indifference and in certain cases even the 
 open hostility of neutral countries to the 
 Allied cause. One would have felt safe 
 in asserting that any Power that dared 
 insult humanity by disregarding every code 
 of honour, by rejecting every rule hitherto 
 recognized by civilized nations for mitigat- 
 ing the horrors of warfare by brazenly 
 tearing up treaties, invading neutral coun- 
 tries and reverting to the methods of 
 ancient savagery as Germany and Austria 
 have done, would have aroused the ven- 
 geance of the entire globe, and launched all 
 the forces of civilization against them. 
 And yet, see what has happened. A 
 considerable proportion of neutrals believe 
 to-day that Germany's cause is a righteous 
 one. Germany's rulers have succeeded in 
 convincing their own people at home and 
 abroad, as well as many neutrals, that 
 the Allies were the aggressors. 
 
 Apart from Italy, who entered the war 
 because of her ancient hostility to Austria, 
 it must be admitted that Germany has 
 managed to secure greater help from neu- 
 
6 THE PSYCHOLOGICAL FACTOR 
 
 trals than have the Allies. Germany has 
 secured the active co-operation of Turkey 
 and Bulgaria, and has prevented Greece and 
 delayed Rumania the avowed enemies of 
 these two races from declaring war them- 
 selves on the side of the Allies, and has 
 forced King Const antine to follow her 
 example in the matter of disregarding 
 treaties. Sweden is in sentiment at least 
 decidedly pro-German. Switzerland, in 
 spite of her danger from Germany's suc- 
 cess, is divided, with a considerable balance 
 in favour of our enemies. Holland seems 
 similarly divided, and as loath to oppose 
 Germany as though she belonged to the 
 Teutonic Empire. Spain leans towards 
 the German cause. Pope Benedict XV is 
 known to have similar leanings. Lastly, 
 the United States whom every one would 
 have counted as being strongly and even 
 aggressively on the side of Freedom 
 prides herself upon her rigid neutrality, 
 and looks on this great struggle with com- 
 parative indifference. I speak now of the 
 Government and the general opinion of the 
 American people as expressed by their 
 
THE PSYCHOLOGICAL FACTOR 7 
 
 leading journals. It can hardly be doubted 
 that if Germany had secured control of 
 the seas and defeated our Navy, the muni- 
 tions that have been and are still being 
 shipped to the Allies from across the Atlan- 
 tic, would have been going direct to Ger- 
 many. Whatever help the Allies have 
 received and are receiving from neutral 
 countries, is due to the strength of our 
 Navy and to commercial and financial 
 policies, and not to any moral considera- 
 tions. 
 
 ALLIES' MAIN STRENGTH 
 
 What every one would have regarded 
 as the main strength of the Allied cause 
 its justice seems to have been of little 
 material advantage. At first sight it would 
 appear as though moral considerations were 
 of little or no value in warfare, and would 
 lead one to despair of the ultimate triumph 
 of Right over Wrong. Let us see, however, 
 how this apparent inversion of the moral 
 order of things has been brought about. 
 How is it, to use our metaphor once more, 
 that with so poor a hand, Germany has 
 
8 THE PSYCHOLOGICAL FACTOR 
 
 been able to score so many points, and with 
 a handful of trumps why have the Allies 
 failed to win ? The answer is that from 
 the very beginning of hostilities, Germany 
 seized the psychological factor and has 
 ceaselessly employed it with daring skill 
 and even brazen effrontery, whilst on the 
 other hand the Allies have either through 
 ignorance, indifference, or foolishness 
 neglected or refused to use the strongest 
 weapon they could possibly have found 
 and which good fortune originally placed 
 in their hands. Indeed, they have allowed 
 the enemy to spike their most powerful 
 guns ! 
 
 When the German rulers first planned 
 their treacherous attack upon their neigh- 
 bours, they drew up a lying report, setting 
 forth the causes and origins of the war, 
 asserting that Germany was surrounded 
 by a world of enemies hungering and thirst- 
 ing to destroy her, which was to be pub- 
 lished at home and abroad as soon as war 
 was declared. Preparations for a universal 
 propaganda were made months and even 
 years prior to the war. In every neutral 
 
THE PSYCHOLOGICAL FACTOR 9 
 
 country, emissaries of the German Govern- 
 ment bought up newspapers and paved 
 the way for controlling public opinion. 
 It is stated that upwards of 10,000,000 has 
 been spent by the German Government 
 in the United States alone on propaganda 
 work. Newspaper and magazine articles, 
 pamphlets and lectures illustrated by the 
 cinema, have been produced and delivered 
 by the thousand in all lands and in all 
 tongues ! 
 
 AVALANCHE OF FALSEHOOD 
 
 Against this avalanche of falsehood the 
 Allies have apparently done nothing, be- 
 yond offering a direct denial. It is safe 
 to say that not a single newspaper has been 
 purchased or started in a neutral country 
 by any of the Allied Powers for the purpose 
 of counteracting this deadly campaign of 
 German slander. Our own Government 
 appears to have been content with the 
 publication of a selection of Foreign Office 
 literature, and one or two speeches of Sir 
 Edward (Viscount) Grey, which was sold to 
 the public at the price of one shilling a copy. 
 
10 THE PSYCHOLOGICAL FACTOR 
 
 These, together with a few cheap pamphlets 
 containing a digest of the Blue Book, and 
 a recital of the horrors perpetrated by the 
 Huns in France and Belgium, appear to be 
 our total contribution to the world's de- 
 mand for enlightenment regarding the 
 greatest conspiracy in the world's history. 
 The French have done a little better. The 
 Russians, less than ourselves. Moreover, 
 the long .delay in the publication of these 
 pamphlets gave our enemies the field to 
 themselves during the first months of the 
 war. It is true that private effort has in a 
 measure helped to make up this deficiency. 
 But in spite of all this, it can be truthfully 
 asserted that the neglect of the psycho- 
 logical factor by the Allied Powers on the 
 one hand, and the enormous use which the 
 enemy has so skilfully and unscrupulously 
 made of it on the other, has greatly pro- 
 longed the war and increased the strength 
 and resistance of the enemy. 
 
 The psychology of the German people is 
 probably the simplest to understand of any 
 people in the world. It is all writ large 
 in the methods they employ against those 
 
THE PSYCHOLOGICAL FACTOR 11 
 
 they wish to conquer. When the Germans 
 desire to achieve certain psychological re- 
 sults, they first ask themselves what would 
 produce those results among themselves. 
 For example, they are anxious to make 
 their enemy civilians tire of the war and 
 beg their Governments to sue for peace. 
 To the question " What means must we 
 employ to accomplish this result ? " their 
 answer is " Precisely those which would 
 cause our people to beg for peace." Hence 
 all the horrors and deeds of frightfulness 
 at which the world has stood aghast ! 
 
 Here it would be well to notice how un- 
 wittingly our enemies have exposed the 
 true inwardness of their own character by 
 their interpretation of the psychology of 
 other nations. Knowing that fear and 
 greed are the two most potent influences 
 by which they themselves are swayed, they 
 calmly assume that by these same influences 
 the whole world can be governed. This 
 affords us a most interesting view of the 
 kind of " Kultur " the Germans have ac- 
 quired. It is a fact that the greatest 
 surprise and disappointment the German 
 
12 THE PSYCHOLOGICAL FACTOR 
 
 rulers have yet experienced during the war 
 is the utter failure of their deeds of fright- 
 fulness Zeppelin raids, etc. to create 
 panic and terror among their adversaries. 
 This has puzzled them beyond words. 
 That their methods have succeeded in the 
 Balkans need not astonish us, for it is 
 among those races whose psychology and 
 morals (or ^mmorals) are nearest akin to 
 their own, that one would ^aturally have 
 predicted the results that nave happened, 
 one might almost say inevitably. 
 
 The psychological factor is far too large 
 a subject with which to deal in detail within 
 the space of a single article. Some time 
 ago I suggested the creation of a " Ministry 
 of Psychology " to work in conjunction 
 with the Ministry of War and Munitions. 
 Perhaps a " Ministry of Publication " would 
 be a better term, since it is chiefly by 
 publication that psychological effects are 
 produced. The object of such a Ministry 
 would be to endeavour to influence 
 through suitable channels public opinion, 
 both at home and abroad, and enlist the 
 sympathies of all neutral countries ; to 
 
THE PSYCHOLOGICAL FACTOR 13 
 
 supervise and censor all publications at 
 ~~- * ~~ "^" - "^^^*"""^ 
 
 home and to stimulate and encourage the 
 martial feelings of our own soldiers and 
 sailors, as well as those of our civilians, by 
 giving ample information of the origin, 
 meaning and object of the conflict ; the 
 results to this country and to the world if 
 the enemy succeeds, and also if he is de- 
 feated. Graphic accounts of military and 
 naval encounters and exploits against the 
 enemy and publications of the names of 
 those regiments, ships, officers and men 
 who have distinguished themselves should 
 be given as often as possible. The presen- 
 tation of suitable scenes and incidents in the 
 Great War by films, which should be shown, 
 not only to the troops themselves and civi- 
 lians, but particularly to those employed 
 in munition and other works. Had a 
 large number of such views, been prepared 
 by us and arrangements made for their 
 display by means of cinema shows accom- 
 panied by lectures at all the great industrial 
 centres once or twice every month, there 
 would have been for instance in the past, 
 far less delay in munition work. Such a 
 
14 THE PSYCHOLOGICAL FACTOR 
 
 Ministry would necessarily require a pro- 
 found and intimate knowledge of the psy- 
 chology of all nations, including, of course, 
 our own. 
 
 No finer war material was ever possessed 
 by a nation than the men who form our 
 armies and navies in this great war. That 
 they have maintained their cheerfulness 
 and ardour with so little help and encourage- 
 ment from those psychological aids which 
 our enemies provide in abundance, shows 
 the wonderful quality of the men. The 
 war is not yet over. The psychological 
 factor will assume a greater and greater 
 importance as the end approaches. It is 
 not yet too late for the Allies and parti- 
 cularly Great Britain to create a depart- 
 ment controlled by men of world-wide 
 experience, who would know how to employ 
 this factor in a manner that would prove 
 of incalculable value to the Allied Cause. 
 
 K 
 
 o 4^te 
 
 r\ 
 
p&ty\e^ fabcfNto 
 
 end of 
 
 THE FINANCIAL FACTOR 
 
 Klectgx 
 
 i OJ05 cure, 
 
CHAPTER II 
 
 (January, 1916) 
 
 THE FINANCIAL FACTOR 
 
 NOTWITHSTANDING its enormous economic 
 and social importance to every member of 
 the community, finance is not a particularly 
 popular subject for discussion. Moreover, 
 any attempt to deal with it in the space 
 of a comparatively short article which will 
 be comprehensible to the ordinary reader 
 presents many difficulties. The subject 
 itself is somewhat abstruse and highly 
 technical, and its discussion involves the 
 use of terms which often convey different 
 meanings to different minds. For we are 
 dealing with a branch of a science which is 
 not yet classified as exact. Further, the 
 average man's ideas of money and credit 
 are usually based on partial knowledge, 
 prejudice, and superstition. One whose 
 financial knowledge and experience is con- 
 
 17 
 
18 THE FINANCIAL FACTOR 
 
 fined to the bank-notes and coins he carries 
 in his pockets is very apt to believe in the 
 existence of some special virtue or mys- 
 terious power lurking within the metal and 
 paper of which they are composed. On 
 the other hand, the man who has been 
 behind the scenes, has learned the true 
 nature of currency, has watched its pro- 
 gress in effecting exchanges, and knows its 
 history past and present in all lands, will 
 agree with John Stuart Mill when he wrote : 
 
 " There cannot, in short, be intrinsically a more 
 insignificant thing in the economy of society than 
 money, except in the character of a contrivance for 
 sparing time and labour. It is a machine for doing 
 quickly and commodiously what would be done, 
 though less quickly and commodiously, without it." 
 
 In endeavouring to make the subject 
 comprehensible to the least instructed, 
 I shall be compelled to deal with certain 
 parts in a manner which, to the more en- 
 lightened, may seem very elementary. 
 
 Next to the problem of furnishing men 
 and munitions necessary to win the war, 
 that of the money supply has loomed the 
 largest in the public eye. In one respect 
 the importance of the financial factor 
 
THE FINANCIAL FACTOR 19 
 
 been very much exaggerated. In another 
 sense, its importance cannot be over-esti- 
 mated. And partly from ignorance and 
 partly from confusion of thought most 
 writers on this subject have insisted on its 
 indispensability where it was least essential, 
 and have failed to point out certain dangers 
 where they really exist. At the beginning 
 of the war more than one journalist confi- 
 dently predicted that the Central Powers 
 would collapse within a year through the 
 exhaustion of their gold supplies. Others 
 are continually harping on the fact that the 
 financial resources (meaning gold) pos- 
 sessed by the Allies' ensure victory. These 
 assertions are strengthened by the un- 
 fortunate use of such catch phrases as 
 " beating the enemy with gold and silver 
 bullets." All this is sheer exaggeration 
 and displays a lamentable ignorance of 
 the real nature and functions of money. 
 If through a stoppage of our paper mills 
 we were to run short of railway tickets, 
 theatre tickets and postage stamps, no 
 one would consider this a valid reason why 
 the authorities should suspend our railway 
 
20 THE FINANCIAL FACTOR 
 
 and postal services, and close our theatres. 
 Substitutes for tickets and stamps would 
 soon be furnished, and the traffic, per- 
 formances, and services would proceed as 
 usual. So it is with the money supply. 
 Some of the greatest wars in history have 
 been fought and won by nations who, 
 from the financiers' standpoint, were hope- 
 lessly bankrupt. Napoleon and the French 
 Republic fought Europe with nothing more 
 solid in the financial line than " paper 
 bullets." Great Britain fought and con- 
 quered Napoleon with the aid of similar 
 financial weapons. The American War of 
 Independence and their Civil War were 
 both similarly financed. 
 
 A century ago writers would not have laid 
 nearly so much stress on the importance of 
 gold as many do to-day, for the reason 
 that there was far less superstition regard- 
 ing the use of the precious metals for 
 currency purposes. The old economists 
 had far clearer ideas of the functions of 
 money than many of our modern writers. 
 For example, the theory that money must 
 possess what is called " intrinsic value " 
 
THE FINANCIAL FACTOR 21 
 
 did not serve to confuse the minds of 
 students of monetary science in the days 
 when the only money circulating was 
 so-called inconvertible paper notes and 
 token coins. No one at that time would 
 have had the impudence to announce 
 that " a currency system is impossible 
 unless based on and backed by gold," as I 
 have heard from the lips of a professor of 
 economics. The mistake made by writers 
 on war finance whose knowledge is con- 
 fined to our modern banking practice in the 
 City of London is in failing to remember 
 that money is, after all, merely an artificial 
 device, an invention, a contrivance for 
 accomplishing certain ends which, under 
 the stress of changing conditions, may be 
 obtained in various ways. Money was 
 defined by the economists of a century or 
 more ago as " a ticket," " an order," " a 
 token," " a counter." But after mono- 
 metallism was forced upon the world by 
 Parliamentary Acts through the influence 
 of international bankers, money and gold 
 became synonymous terms, and the true 
 functions of money were confused with 
 
22 THE FINANCIAL FACTOR 
 
 those of the precious metals, although they 
 are absolutely distinct. Hence the average 
 man is unable to understand how a nation 
 like Germany can continue the war after 
 her gold reserves are exhausted. 
 
 Apart from the settlement of Foreign 
 Exchange balances, and payments for fo- 
 reign propaganda work, gold is of compara- 
 tively little importance to Germany at the 
 present time. If the Central Powers were to 
 lose every ounce of gold and silver they have 
 amassed, it would have little or no effect 
 on the war so long as their foreign trade 
 is cut off. The supreme economic factor is 
 production, not finance. Finance is merely 
 the artificial aid to production and 
 exchange. So long as the enemy can 
 furnish men enough, can raise enough food 
 and raw material, can manufacture suffi- 
 cient guns, munition and clothing, and 
 maintain his transportation facilities to 
 keep his armies going, so long will the war 
 last. In a closed self-supporting Empire 
 which the Teutonic Powers and their 
 Allies may be said within certain limits 
 to comprise, its entire business can be as 
 
THE FINANCIAL FACTOR 23 
 
 easily, as satisfactorily, and far more 
 economically carried on by a State Bank 
 paper currency system than with a gold 
 and silver currency. So long as the paper 
 money is made legal tender throughout 
 the Empire for all debts public and private, 
 so long as the Government itself honours 
 it and keeps the amounts issued within 
 certain bounds, there is no reason why such 
 a system should not enable the enemy to 
 develop his resources as the United States 
 developed hers so successfully for the whole 
 of the greenback period. 
 
 The real need for gold or some such 
 valuable commodity in connexion with 
 Foreign Exchange arises because paper 
 currency loses its legal tender qualities 
 the moment it leaves its own country. In 
 this respect money is like a monarch. 
 Whilst it is all-powerful on its own soil, 
 it loses its power and ceases to function 
 the moment it crosses beyond its frontiers. 
 Strictly speaking, money meaning legal 
 tender never goes abroad. The commo- 
 dity of which it is composed may travel, 
 in which case it becomes a piece of metal 
 
24 THE FINANCIAL FACTOR 
 
 of certain weight and fineness. But this 
 is no more money in the strict sense of 
 the word than the gold button of the 
 miner is so many sovereigns. If I take a 
 sovereign and deface the inscription or 
 melt it down, although the gold is still 
 intact, I have destroyed the money. If 
 the entire commercial world were under 
 one supreme ruler, all the bullion and coin 
 of the world might be scrapped and buried, 
 and a universal paper currency established 
 which would maintain and facilitate trade 
 and production far more easily and with 
 infinitely less cost and friction than at 
 present. That anomaly under which ex- 
 change value appears both as a quantitative 
 relation and as a commodity at one and 
 the same time a phenomenon to which we 
 owe many of our apparently economic 
 Chinese puzzles would disappear as soon 
 as our legal tender laws which at present 
 bind our money to a certain commodity 
 were repealed. The desirability and de- 
 mand for gold arises chiefly indeed one 
 might almost say entirely on account of 
 the fact that all nations have raised gold 
 
THE FINANCIAL FACTOR 25 
 
 to a supremacy above all other commodities 
 by making it when coined legal tender 
 for all debts and for any amount. The 
 present value of gold is due more to this 
 fact than any other circumstance. 
 
 The Financial Factor presents itself from 
 two distinct and entirely opposite and con- 
 flicting standpoints. The one is the bank- 
 ers and moneylenders, and the other is the 
 producers. To the banker, money presents 
 itself as a valuable commodity from which 
 he must needs draw dividends in the shape 
 of interest. Hence cheapness in money is 
 as hateful to the moneylender as cheap 
 clothing is to the sweater. For this reason 
 the banking interests have waged unceasing 
 warfare against State Banking and what 
 they term " cheap money expedients." 
 Moreover, the histories of cheap currency 
 experiments have mostly been written by 
 bankers, their employees, or hired pro- 
 fessors, who have invariably presented the 
 subject from this interested class's point of 
 view. Ic is for this reason that so much 
 importance has been attached to gold for 
 currency purposes. Its scarcity, its dear- 
 
26 THE FINANCIAL FACTOR 
 
 ness, gives weight to the demand for high 
 interest charges. On the other hand, the 
 producer regards money more from the 
 standpoint of its utility his interests 
 require the cheapest form obtainable- 
 consistent with its ability to perform its 
 work. 
 
 {" There are just three ways in which a 
 nation can obtain its war supplies : first, 
 by producing them ; secondly, by pur- 
 chasing them from neutrals ; and thirdly, 
 by plundering conquered provinces. Ger- 
 many has obtained her supplies by all three 
 methods. But owing to the Allies' com- 
 mand of the seas, her opportunities for 
 purchasing have been greatly hampered. 
 Hence her need for gold is enormously 
 reduced. This, however, gives our enemy 
 one advantage. It compels him to fall 
 back on his own productive resources, 
 thus saving him and his descendants the 
 future burdens of interest charges on foreign 
 loans. How much he has secured in the 
 shape of forced indemnities and plunder 
 from Belgium, France, and Poland, we 
 cannot tell. There are evidences that hun- 
 
THE FINANCIAL FACTOR 27 
 
 dreds of thousands of men and women have 
 been enslaved and forced to contribute 
 their labour towards providing the enemy 
 with food, clothing, and munitions. What- 
 ever he secures from these sources are 
 obtained without the need of either gold 
 or loans. On the other hand, the Allies' 
 supplies are obtained by production and 
 foreign purchase, and hence their need for 
 gold and foreign loans is far greater than 
 the enemy's. 
 
 Now the particular method of raising 
 funds has a most important bearing on 
 production both present and future. And 
 it is here that danger lies, which few, if 
 any, writers have so far mentioned. At the 
 beginning of the struggle Mr. Asquith 
 stated that there were three methods of 
 paying for our importations of munitions 
 and other necessaries. One was by exports 
 of our own products together with our 
 maritime services, another by the sale of 
 foreign investments, and the third, by the 
 loan. And he advocated the last as the 
 most convenient for the nation. Let us 
 consider these. To pay by our exports 
 
28 THE FINANCIAL FACTOR 
 
 would mean that we should be compelled 
 to produce continuously for export at least 
 as much as in ordinary times of peace. 
 But as a large proportion of our factories 
 are now turned over to special work for 
 war munitions which from the economic 
 standpoint is absolutely waste our ex- 
 ports are necessarily curtailed. Similarly, 
 since our ships are mostly employed in 
 transporting men and munitions for the 
 war, our maritime services, hitherto pro- 
 fitably employed on foreign trade, are also 
 greatly reduced. 
 
 One point arises here which demands 
 notice. If at the very beginning of the 
 war greater encouragement had been given 
 our own manufacturers by the Government 
 to increase and develop their own plants, 
 had fewer orders for munitions and larger 
 orders for machines for making munitions 
 been placed abroad, the Chancellor would 
 have had far less difficulty in financing 
 foreign purchases. 
 
 As to financing by means of loans, this is 
 eventually the most ruinous of all methods, 
 although the most popular, because 
 
THE FINANCIAL FACTOR 29 
 
 its evil effects are not immediately per- 
 ceived and the burdens entailed are spread 
 over a wide area and a long period of time. 
 Financing a world-wide crisis like the 
 present, by the method of the loan, means 
 the inevitable enslavement of this and 
 future generations. It inflicts a perpetual 
 burden upon production ! It constitutes 
 a wedge which separates society into the 
 two eternally conflicting classes: the idle 
 rich, who live on interest ; and the over- 
 burdened poor, who must produce it. Its 
 effects are disastrous both socially and 
 economically. It is probable that at the 
 end of the war our National Debt will 
 aggregate at least 3,000,000,000 ! The 
 annual interest on this sum will be 
 150,000,000. This is three times the total 
 net earnings of all the railway and tramway 
 companies in the United Kingdom ! It 
 will be as though the enemy had invaded 
 our country and seized all our transporta- 
 tion facilities and commandeered the entire 
 profits for ages until the loans are paid. 
 And what advantage does the nation get in 
 return for this annual tribute ? Merely 
 
30 THE FINANCIAL FACTOR 
 
 time ! Actually this and nothing more ! 
 We shall be paying this colossal sum merely 
 for the privilege of being allowed to pay 
 the principal if ever at a more con- 
 venient season. At the end of twenty 
 years we shall have paid in interest charges 
 a sum approaching the entire cost of the 
 war without having reduced the original 
 debt by a single shilling. Such is the merci- 
 less nature of the loan ! Moreover, the 
 rate offered by the Government viz., 5 
 per cent. is far in excess of the average 
 net earning capacity of the factors of 
 production themselves. A simple arith- 
 metical calculation will show that produc- 
 tion does not keep pace with the demands 
 of interest charges at anything like 5 per 
 cent. After providing for the proper nour- 
 ishment and sustenance of the two prime 
 factors themselves, land and labour so 
 that production and reproduction may 
 continue and develop after reserving the 
 necessary amount for wear and tear of 
 capital, after deducting for the expenses of 
 Government, national and municipal, for 
 education, for defence, for the protection 
 
THE FINANCIAL FACTOR 31 
 
 of the sick, the wounded, the aged, the 
 infirm, the insane, etc., etc., the residue 
 will not be sufficient to pay an average of 
 anything like 5 per cent, on the nation's 
 capital. 
 
 Some twenty years ago I showed that 
 even in a country as rich in natural re- 
 sources as the United States, the claims of 
 capital outran the capacity of production, 
 and hence periodically wholesale bank- 
 ruptcy and starvation of the factors them- 
 selves was inevitable There remains 
 
 for us to consider the other method of 
 financing the war mentioned by the Prime 
 Minister. This plan has recently been 
 adopted by the Chancellor of the Exchequer. 
 American securities are now being ex- 
 changed for British Government Bonds, so 
 that payments for American munitions and 
 other goods can be made in American 
 currency. This is by far a better arrange- 
 ment than that originally adopted by the 
 Government. Briefly stated, the advan- 
 tages are as follows 
 
 1. It will tend to confine the Government 
 loan to our own people, and therefore the 
 
 TJ, D 
 
32 THE FINANCIAL FACTOR 
 
 interest will be largely expended on British 
 products. 
 
 2. It will tend to reduce the volume of 
 tributary goods flowing into this country 
 from abroad which have hitherto competed 
 with our home products, and tended to 
 reduce wages and foment labour troubles. 
 
 3. It will tend to cheapen future loans 
 for productive enterprises a consumma- 
 tion devoutly to be wished. 
 
 It may be inquired, " What method of 
 financing the war could have been adopted 
 other than those already mentioned by the 
 Premier ? >! I will attempt to answer this 
 as fully as the small space remaining will 
 allow. 
 
 At the end of July, 1914, when war was 
 seen to be inevitable, our banking system, 
 which was supposed by the man in the 
 street to be impregnable, suddenly col- 
 lapsed. Although the public received the 
 news with astonishment, those who, like 
 myself, have known and have striven for 
 years to open the eyes of the public to the 
 imminent danger of the confidence- basis 
 upon which the business of our Joint Stock 
 
THE FINANCIAL FACTOR 33 
 
 banks has been conducted, fully expected 
 this catastrophe. In An Open Letter to the 
 Chancellor of the Exchequer (published by 
 Dent & Sons, November, 1911) I said: 
 
 " Under the fatal ban of the legal tender and Bank 
 Charter Acts, all banking enterprise of an original 
 character has been suppressed, and our Joint Stock 
 banks have had to erect their vast edifices (of credit) 
 upon the narrow and unstable foundations provided 
 by these laws. To one who has given the subject 
 any careful thought, the marvel is that we have so 
 long escaped the inevitable debdcle which sooner or 
 later must overtake us." 
 
 Again in the same letter I said: 
 
 " Moreover, it is as certain as that the sun will 
 rise to-morrow, that in a great crisis we shall be com- 
 pelled to suspend our Bank Charter Act and accom- 
 modate ourselves to paper money." 
 
 Instead of doing what has been done on 
 former occasions under similar crises 
 viz., suspending the Bank Charter Act 
 our Government in my judgment very 
 unwisely declared a moratorium (an in- 
 direct way of announcing bankruptcy), a 
 humiliation which must have caused our 
 former great Chancellors, Peel, Gladstone, 
 and Goschen, to turn in their graves. The 
 generosity of the Government saved the 
 
34 THE FINANCIAL FACTOR 
 
 banks, as usual, at the public expense. 
 The entire credit of the nation was placed 
 at the banks' disposal, which enabled them 
 to open their doors, resume business, and 
 avoid a receivership. The nation was com- 
 pelled by a complacent Chancellor to take 
 all the risks whilst the bankers took all the 
 profits. If at that time the Government 
 had seized the golden opportunity of nation- 
 alizing our entire banking business, instead 
 of catering to the private interests of bank 
 shareholders, they could have effected one 
 of the greatest and most valuable economic 
 achievements of modern times, and gained 
 for the nation incalculable advantages. 
 Unfortunately for this nation, neither the 
 Government nor the Chancellor seemed to 
 realize the advantages to be gained for the 
 nation, or the opportunity which the bank- 
 ing collapse offered. 
 
 The present banking business of this 
 country, which is practically a monopoly, 
 is an extremely lucrative one, and is due 
 to the special privileges granted by law. 
 In the hands of the Government, it would 
 be made to produce an enormous revenue, 
 
THE FINANCIAL FACTOR 35 
 
 whilst by extending credit facilities to 
 manufacturers, farmers and small pro- 
 ducers generally, at moderate rates of 
 interest, a very great impetus might be 
 given to production, and untold benefits 
 conferred upon some of our most deserving 
 classes, who are at present cut off from 
 such credit facilities by the autocratic 
 methods of our London banking directors. 
 Moreover, under a national banking system, 
 there need have been no war loans so far 
 as Government purchases in this country 
 are concerned. Issues of paper money 
 would have sufficed for all domestic re- 
 quirements. Germany is very wisely doing 
 this at the present time to a very consider- 
 able extent. It is said that the German 
 banks have issued and circulated since the 
 war notes equivalent to 1,000,000,000. 
 No doubt this has tended to depreciate 
 the value of the mark as compared with 
 its purchasing power prior to the war. 
 Disadvantageous as this may be in many 
 ways, it is infinitely preferable to the mur- 
 derous effects of the loan. After all, the 
 evil effects of a depreciated currency are 
 
36 THE FINANCIAL FACTOR 
 
 more apparent in foreign than in home 
 trade. But these effects are both ill and 
 beneficial. It injures creditors, it benefits 
 producers and debtors. It injures im- 
 porters, it benefits exporters. Unfortu- 
 nately, we are so completely under the 
 continual shadow of the great London 
 octopus, we are unable to see things in 
 their true proportion. It has been the 
 persistent policy of every British Cabinet 
 since Sir Robert Peel's administration to 
 sacrifice all and every interest towards 
 maintaining the supremacy of the London 
 bankers. To such a degree has this policy 
 been carried out that the average man be- 
 lieves the British Empire would collapse 
 if London ceased to be the money market 
 of the world. And to maintain this, 
 British trade and production have been 
 both sacrificed and taxed to an incredible 
 degree. The United States has grown to 
 be, economically speaking, a far more pros- 
 perous and richer country than ours. And 
 outside of Wall Street, no American parti- 
 cularly aspires to see New York or Chicago 
 the world's monetary centre. The same 
 
THE FINANCIAL FACTOR 37 
 
 might almost have been said of Germany 
 prior to the war. It is questionable 
 whether the London money market confers 
 any substantial benefit on our home trade, 
 our manufactures, or commerce. But it 
 certainly does expose us to the most harass- 
 ing and most fluctuating bank rate of any 
 commercial nation in the world. 
 
 One further method of raising funds 
 may be mentioned. The method is so 
 simple one is almost ashamed to mention 
 it as novel. If, instead of offering bribes 
 in the form of interest, the Government had 
 made an appeal to the patriotism of the 
 people to contribute funds voluntarily, 
 I believe money would have poured in 
 sufficient to carry on the war. Certainly 
 few would have refused to lend their wealth 
 without interest to safeguard England 
 and her Empire. It seems incredible that 
 a people would freely offer their lives and 
 those of their husbands, brothers and sons 
 to preserve the safety of their country, 
 whilst refusing to give a portion of their 
 property for the same object. Had the 
 Government trusted and confided in the 
 
38 THE FINANCIAL FACTOR 
 
 people instead of following the advice of 
 our bankers, this war might have been 
 fought and paid for without inflicting all 
 these burdens on future generations. To 
 deny this is to deny that the British people 
 are patriotic, and to accuse them of holding 
 property far more sacred than the lives of 
 their sons and brethren. It may yet happen 
 that such an appeal will be found neces- 
 sary. When that time comes the people 
 will be found ready to make any sacrifice 
 required to crush the enemy. 
 
 In conclusion it may be objected that 
 these ideas and suggestions are revolu- 
 tionary. The answer is, we are already in 
 the midst of the greatest revolution the 
 world has yet experienced. The old order 
 passeth. A new one is dawning. What its 
 character will be depends much upon the 
 ideas and actions of those of us now living. 
 
 W. 
 
K\ 
 
 -Hoe. 
 
 This 
 
 CAPTURING GERMAN TRADE 
 
 n/c? 
 
 uAvft.ki* 
 
 \. uAoit 4o M 
 .<*jp 
 
CHAPTER III 
 
 (January 20th 9 1916) 
 
 CAPTURING GERMAN TRADE 
 
 MUCH time, energy, and money are being 
 expended in tjie laudable endeavour to get 
 our merchants and manufacturers to rea- 
 lize the unique opportunity presented by 
 the war for capturing some of the trade 
 hitherto enjoyed by our enemy. The 
 Board of Trade has opened a department 
 for furnishing useful information regarding 
 foreign markets, our Consuls are beginning 
 to send reports of foreign wants and condi- 
 tions. 
 
 The British manufacturer has been 
 severely lectured and criticized for his lack 
 of enterprise for his refusal to adopt new 
 methods, his conservatism and general 
 thick-headedness. No doubt much of this 
 is well deserved. The foreign agent, anx- 
 ious to supply British goods, has shed 
 
 41 
 
42 CAPTURING GERMAN TRADE 
 
 many a bitter tear over the stupidity of 
 the Briton who argues that because his 
 manufactures are recognized as satisfactory 
 in his own country, they should therefore 
 be good enough for the foreigner. His 
 refusal to understand or to try to under- 
 stand the foreign want has cost this country 
 dearly. But when all this is admitted 
 there remains much that requires further 
 elucidation. 
 
 Great Britain in the past has been easily 
 the first and leading industrial power. 
 Her early inventors, the enterprise of her 
 capitalists and merchants, the skill and 
 perseverance of her artisans made this land 
 the world's home of industry. For over a 
 century we reigned supreme in the indus- 
 trial world until we began to find ourselves 
 challenged first by the United States and 
 then by Germany. 
 
 NEW COMPETITION 
 
 The advent of American and German 
 competition has, however, entirely changed 
 the character and methods of trade. Since 
 the days when Richard Cobden preached 
 
CAPTURING GERMAN TRADE 43 
 
 his gospel of the civilizing and pacific 
 influences of trade, trade methods have 
 undergone a complete revolution. Far from 
 being pacific, modern trade involves a 
 merciless system of warfare. It is war 
 to the knife, in which the financially weak 
 must succumb to the financially strong. 
 Nowadays business success requires some- 
 thing more than brains and more than 
 skill. Success is usually on the side of the 
 big bank account. inance^Jias become 
 more and more the dominating factor in 
 the international trade warfare which has 
 Tieen waged with such determination and 
 ruthlessness during the past thirty-five 
 or forty years. And it is this particular 
 factor which is never referred to in all the 
 literature which the authorities are distri- 
 buting so generously. 
 
 A comparison of the methods by which 
 the Germans have captured so much of 
 the world's trade, with our own will throw a 
 flood of light on this subject. For the past 
 fifteen or twenty years German trade with 
 Russia and Turkey, for example, has in- 
 creased at an enormous rate. Notwith- 
 
44 CAPTURING GERMAN TRADE 
 
 standing the Germans are and have been 
 personally disliked by the people of both 
 countries owing to their insolence, coarse- 
 ness and unscrupulousness the Turks and 
 Russians have found that their wants have 
 been better supplied on more reasonable 
 terms than by those of any other nation. 
 The Russian dealer likes long-time credit. 
 The German firm gives him all he demands. 
 I have seen German bills drawn against 
 Russian firms for terms of three, four, and 
 even five years. 
 
 Again, the German merchant not only 
 learns and speaks the language of the 
 country he wishes to trade with, but prints 
 all his catalogues and price lists in the same 
 language, and adopts the same monetary, 
 weight, and measure units. His prices 
 usually include delivery to the customers' 
 doors. He distributes samples of his goods 
 freely. He measures the character of those 
 he deals with, and acts accordingly. He 
 has no scruples. No Oriental politician 
 can rival the smart Teuton salesman in 
 matters pertaining to bribery and corrup- 
 tion. 
 
CAPTURING GERMAN TRADE 45 
 
 But behind all this stands the German 
 Government in the persons of the German 
 Ambassadors and Consuls, whose duty it 
 is to assist in every possible way the intro- 
 duction and extension of German trade. 
 No German prince, not even the Kaiser 
 himself, has ever considered it beneath 
 his dignity to solicit favours and privileges 
 from foreign rulers on behalf of German 
 merchants. Much of the loyalty and pat- 
 riotism of the average German is directly 
 attributable to the belief that his King and 
 Government are interested in his particular 
 welfare and make it one of their duties 
 to support him in his efforts to secure 
 success. But the chief factor in Germany's 
 industrial success is undoubtedly its bank- 
 ing system. 
 
 GERMAN BANKERS 
 
 The German banker understands that 
 his chief and most important client is his 
 own countryman, and he stands ready to 
 assist him to the best of his ability. The 
 German manufacturer, inventor, merchant, 
 tradesman, agriculturist and producer gen- 
 
46 CAPTURING GERMAN TRADE 
 
 erally, have little difficulty in securing 
 whatever financial support they require, 
 provided, of course, they can satisfy their 
 banker of their ability to produce and sell 
 goods at a reasonable profit. The German 
 banker shares in the profits of the industry 
 he supports, and hence the holders of his 
 bank shares do not depend upon thejnjgre 
 interest charges on loans. German banks 
 are therefore part and parcel of German 
 industries, aiding and supporting them, 
 ready to assist in every emergency and in 
 every industrial development which pro- 
 mises success. 
 
 Now contrast all this with our British 
 methods. The average Briton knows no 
 language but his own and that often 
 imperfectly. He produces only the goods 
 he has been accustomed to all his life, and 
 makes little or no effort to improve his 
 methods or understand the wants of for- 
 eigners. He sends his English catalogues 
 abroad and quotes in English currency, 
 f.o.b. London, Liverpool, Hull, Glasgow, 
 or some other British port. His terms 
 are cash against documents, or so many 
 
CAPTURING GERMAN TRADE 47 
 
 days after receipt of invoice. There are, 
 of course, many exceptions, but I am re- 
 ferring to the average British firm. And 
 unlike the German, he meets with little 
 or no support from his own Government. 
 Neither his Ambassador nor his Consul 
 will, as a rule, move a finger to help him 
 secure a contract or develop his foreign 
 business. He stands absolutely alone ! 
 Not only so. Very frequently he will 
 find his Consul addressing him in Teutonic 
 accents. For some inscrutable reason, the 
 British Foreign Office has, for the last 
 half-century or more, considered that 
 British interests in foreign ports were as 
 safe or safer in the hands of Germans than 
 in those of the British themselves. 
 
 BBITISH CONSULAR SERVICE 
 
 In an article entitled " Consular Service 
 Reform," published in the Open Review 
 (July, 1909), Mr. Percy F. Martin, F.R.G.S., 
 says : 
 
 " From a long and intimate acquaintance with the 
 methods of modern Consular Service, gathered, I 
 may add, in every part of the world, I am firmly 
 convinced that a more clumsily conceived or a more 
 
 T.F. B 
 
48 CAPTURING GERMAN TRADE 
 
 indifferently conducted system of Consular representa- 
 tion does not exist than that of Great Britain. . . . 
 Many persons who occupy the position of British 
 Consul are ' British ' neither by birth nor sentiment 
 nor in method. ... It was proved that throughout 
 the great Empire (Germany), which is opposed so 
 much to British trade and commerce, and between 
 whose commercial representatives and ourselves 
 has so long existed and must ever exist the keenest 
 rivalry, nine-tenths of the Vice-Consuls are of German 
 birth and origin." 
 
 This was written, bear in mind, just five 
 years before the war. 
 
 In addition to all these disadvantages, 
 the British manufacturer and merchant 
 reap no financial benefit at the hands of 
 their banker by reason of their being 
 British citizens. The English banking sys- 
 tem has been extolled mostly by the 
 money-lending classes and foreigners 
 throughout the world. Viewed from the 
 standpoint of the foreigner, there is no 
 question that it is a wonderful institution. 
 For it collects the savings and earnings of 
 the British people and distributes them 
 with the utmost impartiality to the highest 
 bidder, whether British or foreign, all over 
 the world. The London banker is essen- 
 tially an internationalist. He regards all 
 

 
 CAPTURING GERMAN TRADE 49 
 
 nations with an entirely impartial eye. 
 He is swayed by one motive only namely, 
 the determination to win big dividends 
 with the least possible risk. If the foreign 
 competitor requires financial accommoda- 
 tion and is willing to pay a higher rate of 
 interest than the British producer (with the 
 same security) the foreigner wins. There 
 are dozens of German industries flourishing 
 to-day, built up and supported by British 
 capital. It has long been the cry of Eng- 
 lish firms that their banks offer them little 
 or no support in the development of their 
 businesses. 
 
 THE Two BANKING SYSTEMS 
 
 The broad distinction between the British 
 and German Banking System is that whilst 
 the former depends for its rewards upon 
 what the ancients termed usury (that is, 
 payment for use), the latter depends upon 
 production. And between these two sys- 
 tems a great gulf is fixed. For the one is 
 less concerned with the industrial success 
 of its own country than the other. It is 
 not of such serious moment to the London 
 
60 CAPTURING GERMAN TRADE 
 
 banker whether British trade is dull as the 
 decline of German trade is to the German 
 banker, for the London banker regards the 
 world as his oyster. If the British pro- 
 ducer finds trade too dull to employ the 
 bank funds profitably, there are others. 
 The German, or American, the Brazilian or 
 Argentine merchant will be glad to employ 
 them. Hence the dividends of our bank- 
 ing companies show comparatively little 
 variation regardless of our trade condi- 
 tions. But industrial depression of the 
 Fatherland means financial depression for 
 the German banks, and vice versa. Hence 
 it is entirely to the advantage of the German 
 banker to assist to the best of his ability in 
 stimulating the industrial prosperity of his 
 own people. Our banking system deserves 
 a chapter to itself. As a safe system for 
 earning steady dividends for bank share- 
 holders it stands almost unrivalled. For, as 
 was demonstrated in August, 1914, in 
 times of crisis it has the credit of the nation 
 behind it without having any well-defined 
 responsibilities thrust upon it, so that 
 whilst the banks are allowed to reap all the 
 
CAPTURING GERMAN TRADE 51 
 
 profits, the nation is compelled to take the 
 risks. There are no obligations on the part 
 of any of our banks to render aid or facili- 
 ties to any British industries whatsoever. 
 Such help is purely optional. 
 
 As a national institution, our banking 
 system is one of the most expensive and 
 harassing that could possibly be devised. 
 It taxes the British producer for the benefit 
 of the foreigner. It compels him to pro- 
 vide at all times a free gold market and a 
 fixed level for gold, chiefly for the benefit 
 of foreign merchants. It subjects him to 
 the most variable bank rate in the world ! 
 It has been variously estimated that every 
 advance of 1 per cent, in the bank rate 
 costs this country from 50,000 to 100,000 
 per week ! 
 
 In addition to all the advantages enu- 
 merated and possessed by the German 
 producer, there is the further one that he is 
 protected to a large extent from foreign 
 competition in his home market. Every 
 Government department in the Fatherland 
 is forbidden to order goods from foreign 
 firms where ^r&Uar goods are purchasable 
 
52 CAPTURING GERMAN TRADE 
 
 in Germany. On the other hand, it has 
 long since been the settled policy of our 
 own Governments, Railway Companies, 
 Municipalities and Corporations generally, 
 to buy in the cheapest market, regardless 
 of consequences. What possible chance then 
 is there for British firms to capture German 
 trade ? The answer is that there is no chance 
 unless the conditions are completely changed. 
 
 BEFORE THE WAR 
 
 Prior to the war, the man or firm who 
 made such an attempt, soon discovered 
 that he was fighting not merely a German 
 competitor but the entire German nation. 
 And just as many of the small shopkeepers 
 have been driven out by the great depart- 
 mental stores, just as the small producer 
 has been wiped out by the Trust and Com- 
 bine, so many of our manufacturers and 
 merchants have found successful competi- 
 tion with German houses backed as they 
 are by all the strength of the German 
 Government impossible ! Since the war 
 started, many instances have come to our 
 knowledge of enemy firms ^having been 
 
CAPTURING GERMAN TRADE 53 
 
 guaranteed certain dividends by their 
 Government, provided they used every 
 effort to oust rival nations from foreign 
 markets. These firms were even advised 
 to offer goods below cost, until all com- 
 petitors were driven out, such losses being 
 made good by the State. 
 
 Again, the interest of the German 
 authorities in every branch of industry 
 is illustrated by their policy of furnishing 
 gratuitous help to German inventors and 
 discoverers. Take, for example, the glass 
 industry. Heat-resisting glass is a com- 
 paratively modern discovery, and was 
 practically a German monopoly when the 
 war started. The story of the rise of this 
 industry was told me by a German pro- 
 fessor of Jena some years ago. Two pro- 
 fessors of the University of that town 
 stumbled upon a method of manufacturing 
 glass which could withstand both high 
 and low temperatures without breaking. 
 Recognizing the value of their discovery, 
 they applied to the Government for finan- 
 cial assistance, and it is said the Government 
 immediately responded with a gift of 
 
54 CAPTURING GERMAN TRADE 
 
 300,000 marks for the purpose of completing 
 their experiments and starting the in- 
 dustry. This industry employed at the 
 outbreak of the war many thousands of 
 people, and represented some millions of 
 pounds of revenue to the German nation. 
 Again, compare the German Govern- 
 ment's attitude towards their dye industry, 
 which has become another vast monopoly, 
 to the treatment accorded this industry 
 by our own. Here was an original British 
 invention made the basis for a German 
 monopoly ! Is it not a fact that hundreds 
 of British inventors have had to go abroad 
 or sell their inventions to foreigners in 
 order to get them taken up ? Have not 
 many of our progressive manufacturers 
 been compelled to import German chemists 
 and scientists to assist them in the deve- 
 lopment of their manufactures ? Can we 
 possibly wonder at the enormously greater 
 progress of German industries when we 
 contrast the entirely different attitudes 
 of the two races and their Govern- 
 ments ? 
 
CAPTURING GERMAN TRADE 55 
 
 BUSINESS PATRIOTISM 
 What advantage economically speaking 
 - has it been to an inventor or manu- 
 facturer or business man generally to 
 belong to the British nation ? What privi- 
 lege or advantage has his British birth and 
 citizenship conferred upon him which the 
 foreigner is not equally entitled to ? Ex- 
 cept for the purpose of taxing him or 
 soliciting his vote, what evidence is there 
 that our Governments have been actively 
 interested in the success of the average 
 Briton ? 
 
 German trade can be captured only by 
 the nation that can emulate Germany in 
 her enterprise, her knowledge, her organiza- 
 tion (where the Government lends its 
 wholehearted support to its producing 
 classes), and finally, in her banking 
 methods, where the banks recognize their 
 chief functions to be the support and 
 development of their nation's trade and 
 industries. 
 
 The lesson of business patriotism has 
 yet to be learned both by our Government 
 and people. No German could have writ- 
 
56 CAPTURING GERMAN TRADE 
 
 ten such a letter as that recently published 
 by a well-known Earl, who asked if it was 
 conceivable that the British public would 
 stand being compelled after the war to 
 pay more for certain goods instead of buying 
 them from Germany ? If we are to win 
 in our future trade warfare, we must 
 present a solid front to the enemy. We 
 must mobilize all our forces of production. 
 We must consolidate our credit. The Gov- 
 ernment and people must unite to support 
 and help each other. Our Ambassadors and 
 Consuls must all be British to the core. 
 They should be conversant with trade and 
 commerce in all its branches, and constitute 
 the advance guards for opening up new 
 fields for conquest by our merchants and 
 manufacturers. The Government should 
 nationalize our banking system and place 
 banking facilities on easy terms within the 
 reach of all classes. Inventors, discoverers 
 and scientists should obtain social recogni- 
 tion proportional to their attainments, and 
 the conferring of titles on men of wealth 
 regardless of the means by which their 
 wealth has been acquired should cease. 
 
CAPTURING GERMAN TRADE 87 
 
 In spite of our many shortcomings, this 
 nation possesses all the material and re- 
 sources for leading the world industrially 
 and intellectually to greater heights than 
 have ever yet been foreshadowed. For the 
 accomplishment of this, all we need are 
 leaders who have the knowledge, the will, 
 and the ability to organize and develop 
 these resources. 
 
 
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 \5 
 
 U 
 
 
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 fci 
 
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 -Wt^-r 
 o-P 
 
 ENGLAND'S BANKING SYSTEM 
 
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CHAPTER IV 
 
 (January 27th, 1916) 
 ENGLAND'S BANKING SYSTEM 
 
 IN his remarkable book Germany and the 
 next War, Bernhardi mentions the following 
 as one of the many advantages gained by 
 war : " All the sham reputations which a 
 long spell of peace undoubtedly fosters, 
 are unmasked." The present war has 
 undoubtedly " unmasked " the " sham re- 
 putations " of several of our most venerable 
 and hitherto admired institutions both 
 political and economic. Among these may 
 be mentioned the doctrine of laissez faire 
 which has long been the accredited gos- 
 pel of our governing class. Free trade 
 appears also to have fallen from its 
 lofty pedestal during the past few months, 
 judging from the recent parliamentary 
 debates and editorials in certain Liberal 
 journals. But our one idol that is at 
 
 61 
 
62 ENGLAND'S BANKING SYSTEM 
 
 present in the greatest disrepute is Britain's 
 banking system. 
 
 SCATHING CRITICISMS 
 
 Nowadays, it is almost impossible to 
 peruse either a trade journal or newspaper 
 without noticing some scathing criticism 
 of the system which has hitherto been held 
 up as a shining example of financial strength 
 and efficiency. The Daily News, which 
 prior to the war never expressed anything 
 but blind and absolute faith in this national 
 idol, publishes an article (January 15) by 
 the Editor, entitled " Money for all," in 
 which he says : 
 
 " When the war came, the false bottom fell out 
 of our banking system and we made a startling dis- 
 covery. We found that the banks were an im- 
 posing fair weather structure which tottered like a 
 house of cards when the storm came and only sur- 
 vived because in one swift hour Mr. Lloyd George 
 gave them the security of the nation. It was dis- 
 covered that behind all the appearances of strength, 
 the banks were a fiction and the reality on which 
 they traded was the credit of the State, yours and 
 mine and everybody's. Gold disappeared from cir- 
 culation, and there flowed forth a torrent of notes 
 issued by the Treasury and represented nothing but 
 the credit of the nation. 
 
 " Walter Besant once said that ' the art of banking 
 was to get other people's money and use it for your 
 
ENGLAND'S BANKING SYSTEM 63 
 
 own advantage.' There has been no more illuminat- 
 ing revelation during the war, and the question for 
 us to ask is whether this private monopoly of the 
 national credit can be permitted to continue ? Can 
 we start the future with a ' corner ' in money ? Or 
 must we not see that money like political power must 
 be democratized ? If money is only a symbol 
 representing the whole credit of the community, 
 why should that symbol not be at the command of 
 the whole community whose credit it represents ? " 
 
 Now the remarkable thing about this 
 article is not that it should be written at 
 this time when " sham reputations " are 
 falling in all directions, but that the writer 
 did not make these discoveries and dis- 
 closures sooner. During the past forty 
 years quite a library of publications have 
 appeared, exposing the rotten foundation 
 of Britain's financial system and predicting 
 a collapse sooner or later. This danger 
 has been the subject of many discussions 
 and resolutions at various meetings of our 
 Trade bodies and Chambers of Commerce 
 all over the United Kingdom for the last 
 thirty-five years. Some of the most vigor- 
 ous criticisms have been written by mem- 
 bers of the banking profession themselves, 
 such as Sir Edward Holden, and by financial 
 writers like Walter Bagehot, and on one or 
 
64 ENGLAND'S BANKING SYSTEM 
 
 two occasions no less an authority than the 
 late Lord Goschen (when Chancellor of 
 the Exchequer) uttered words of warning 
 about the volcano upon which we were 
 living. But like the warnings of the late 
 Lord Salisbury, Frederick Harrison, Lord 
 Roberts, and a host of others to prepare for 
 the war in which we are now engaged, these 
 utterances fell on deaf ears. For it has 
 been the policy of the Press, with a few 
 exceptions, to refuse a hearing to prophets 
 who foretell danger or evil. 
 
 Now that the murder is out, it will be 
 instructive and interesting to examine the 
 wonderful financial edifice the sham Gib- 
 raltar which collapsed days before even 
 hostilities had begun or a single shot had 
 been fired. In his well-known work, 
 Lombard Street, Walter Bagehot wrote : 
 
 " The peculiar essence of our banking system is 
 an unprecedented trust between man and man, and 
 when that trust is much weakened by hidden causes, 
 a small accident may greatly hurt it, and a great 
 accident for a moment may almost destroy it." 
 
 INHERENTLY WEAK 
 To an outsider who for the first time 
 
ENGLAND'S BANKING SYSTEM 65 
 
 learns the true nature of banking, it will 
 appear amazing that intelligent men should 
 devise a system so inherently weak and 
 seriously regard it as a basis for a great 
 nation's trade and industry ! That it has 
 lasted so long speaks volumes for the 
 honesty and faith of the British people 
 the most trusting people in the world. 
 That the system should have been face- 
 tiously termed " The Great Confidence 
 Game " is not surprising, for it is apparent 
 that the basis of our banking business is 
 public confidence. It is, however, only 
 fair to say that the present system was 
 neither designed nor foreseen by its founders 
 as we now know it. It is a development, 
 a sort of monstrosity an abnormal growth 
 like a man's body attached to an infant's 
 feet and legs. 
 
 In 1844 Sir Robert Peel, a well-meaning 
 but narrow-minded statesman, placed Bri- 
 tish banking in a pair of iron boots. The 
 foundation of the system was rigid and 
 narrow. Little or no provision was made 
 for the future development of commerce. 
 The only question that appears to have 
 
66 ENGLAND'S BANKING SYSTEM 
 
 been considered by Sir Robert Peel was 
 how to conserve the value of the sovereign. 
 The development of industry and its needs 
 was quite a side issue, indeed it seems 
 hardly to have received any consideration. 
 Consequently as the banking needs of the 
 nation increased, accommodation had to 
 be provided by enlarging the superstruc- 
 ture without any attempt to enlarge the 
 foundation to a corresponding extent. The 
 system, therefore, came to be likened to 
 an inverted pyramid. 
 
 The system is briefly as follows : The 
 Bank of England (which by the way is a 
 private Joint Stock bank, and is not in any 
 way a national institution so far as its 
 control and management are concerned) 
 is the financial rock upon which all other 
 British banks and financial firms and in- 
 stitutions repose. It is known as the Bank 
 of the Bankers. 
 
 " All our credit system depends upon the Bank 
 of England for its security," says Walter Bagehot ; 
 " on the wisdom of the Directors of that one Joint 
 Stock Company, it depends whether England shall 
 be solvent or insolvent. This may seem too strong, 
 but it is not. All banks depend on the Bank of Eng- 
 land, all merchants depend upon some banker." 
 X 
 
ENGLAND'S BANKING SYSTEM 67 
 
 BANKING LAWS 
 
 Our financial system is the result of 
 certain Acts of Parliament such as our 
 Legal Tender laws, and the Bank Charter 
 Act. The former defines specifically the 
 manner and form in which debts must be 
 paid. The latter defines restrictions under 
 which the banks are permitted to supply 
 the public demand for the debt-paying 
 commodity. And although the one created 
 the necessity for an ever increasing supply 
 of legal tender, the Bank Act not only made 
 no provision for such a supply, it even made 
 such provision both difficult and expensive. 
 So that it became more profitable for the 
 banks to find a substitute for legal tender 
 thereby increasing the public risks. 
 Hence the invention of the cheque system. 
 Debts beyond forty shillings, both public 
 and private, were made specifically payable 
 in gold on demand. The mints were 
 opened to the coinage of gold in unlimited 
 amounts at the fixed rate of 3 17s. IQ^d. 
 per ounce. The Bank of England was 
 allowed the privilege of issuing notes to 
 
68 ENGLAND'S BANKING SYSTEM 
 
 the extent of whatever gold it possessed, 
 at the above rate. An additional issue of 
 what has been termed " inconvertible " 
 notes was allowed against securities and 
 the National Debt to the bank (11, 000,000) 
 at present amounting altogether to about 
 18,500,000. Subsidiary coinage was also 
 provided for. But the main fact in the 
 Bank Charter Act, which constitutes the 
 inherent weakness of the whole system, was 
 that the amount of legal tender available for 
 carrying on the nation's trade and commerce 
 depended not on our domestic needs but upon 
 the conditions of the money markets abroad ! 
 If, for example, a trade boom in Germany 
 or America created an urgent demand for 
 gold, the only method the Bank of England 
 possessed for retaining its reserves was to 
 raise the bank rate. Whilst this tended to 
 cut off some of the foreign demand it also 
 penalized our own people by taxing their 
 banking facilities. It became a double- 
 edged sword that cut both ways, and 
 although it has proved a wonderful instru- 
 ment for booming the value of bank shares, 
 it has proved a dead-weight upon the backs 
 
ENGLAND'S BANKING SYSTEM 69 
 
 of our producing classes and a serious brake 
 upon the wheels of industry. 
 
 Our economic system has been ingeni- 
 ously illustrated by an inverted pyramid. 
 It is supported upon its gold apex, which 
 carries all the credit of the country. Upon 
 this we have reared all our trade, manu- 
 factures and business generally. The 
 amount of gold has been a very varying 
 quantity -but in any case it has repre- 
 sented an extremely insignificant sum in 
 proportion to the load it has had to carry. 
 Just prior to the war the total amount of 
 gold available throughout the country was 
 estimated at less than 60,000,000. The 
 volume of credit resting upon this ran 
 into hundreds of millions. The bank de- 
 posits alone subject to withdrawal at 
 sight was at least ten times all the gold 
 available. It is safe to say that altogether 
 the volume of credit redeemable in gold 
 on demand on August 1, 1914, was more 
 than twenty-five times all the gold that 
 the bankers could possibly scrape together ! 
 The truth is, that ever since the passing of 
 the Bank Charter Act, every bank in this 
 
70 ENGLAND'S BANKING SYSTEM 
 
 country has been doing business on a margin 
 of bankruptcy ! 
 
 The engineer who constructs a bridge 
 or machine, estimates the sizes and chooses 
 his material on the basis of a margin of 
 safety. He first calculates the maximum 
 strains to which the bridge or machine will 
 be subjected. He then multiplies this by 
 two or three and builds accordingly. The 
 Bank Charter Act compelled our bankers 
 to adopt a margin of risk. No provision 
 was made for any extraordinary event, such 
 as war or panic. The one door of safety 
 was suspending the Act. This was actu- 
 ally done on three different occasions 
 during the life of its famous author, with 
 the result that the nation was saved from 
 bankruptcy on each occasion. Imagine a 
 Government passing an Act ostensibly for 
 the protection of the public, which has to 
 be suspended periodically to save the nation 
 from its disastrous effects ! 
 
 But the danger to which this Act exposed 
 the country was not merely apparent in 
 times of war crises. It was liable to arise 
 at any moment through foreign events 
 
ENGLAND'S BANKING SYSTEM 71 
 
 which otherwise would have been of little 
 or no consequence to us. The removal of 
 the cotton crops in Egypt or in the United 
 States, the speculations of financial " plun- 
 gers " in New York, Chicago, or San Fran- 
 cisco, the decision of a Board of Railroad 
 Directors in Argentina to extend their 
 system, a presidential election in the United 
 States, and hundreds of similar events 
 which have little or no direct relation to 
 our home trade any one of these was 
 sufficient to affect our bank rate by causing 
 withdrawals of gold from the Bank of 
 England and to influence our commerce 
 disastrously. So sensitive is our money 
 market, in consequence of this stupid 
 Bank Act, that we actually experience 
 greater and more acute financial disturb- 
 ances on account of foreign events than is 
 experienced in the countries themselves in 
 which these events are happening. 
 
 When the Germans were besieging Paris 
 in 1870, our bank rate stood at 10 per 
 cent., whilst the rate of the Bank of France 
 was only 7 per cent. The German Minister 
 of Finance has boasted that no such panic 
 
72 ENGLAND'S BANKING SYSTEM 
 
 occurred in Berlin when war was declared 
 in August, 1914, as that which was ex- 
 perienced in London at the same time. 
 The wonder is not so much that our banks 
 collapsed at the mere rumour of war, but 
 that they have been enabled to continue so 
 successfully for so long on so unstable a 
 foundation. Can we wonder that for- 
 eigners have christened the British banking 
 system the " Great Confidence Game " ? 
 
THE LONDON GOLD MARKET 
 
CHAPTER V 
 (February 3rd, 1918) 
 
 THE LONDON GOLD MARKET 
 
 FINANCE, as taught in our standard finan- 
 cial books and by our orthodox professors, 
 reminds one of English history as it was 
 taught in British schools fifty and more 
 years ago. At that time the average 
 scholar could recite from memory the names 
 of all the Kings and Queens of England 
 from the Saxon invasion to the accession 
 of Queen Victoria in chronological order. 
 He could tell you the dates of all the great 
 English battles and which side won ; but 
 of the intellectual, economic and social 
 development of the English people in 
 fact of the real history of England he 
 knew nothing, for the simple reason that 
 the history books told him nothing. It 
 was assumed that the lives of monarchs 
 and their Court favourites, their virtues, 
 
 75 
 
76 THE LONDON GOLD MARKET 
 
 vices, intrigues and wars were the only 
 things that mattered, and chronicles of 
 these events, interlarded with Court gossip, 
 passed for English history. Similarly, Bri- 
 tish books on Finance such as one finds 
 recommended by our Schools of Political 
 Economy and by the Press generally, are 
 usually confined to a history of the rise of 
 the Bank of England, a description of the 
 money market, the rules and practices of 
 our banking companies and a eulogy of 
 the whole system as well as the usual 
 tribute to the honesty of our bankers. In 
 short, the writers of these books tell their 
 readers only one part and the least im- 
 portant part of their subject. They show 
 how efficient, safe and profitable (to the 
 banker) is the British banking system, 
 how advantageous (to the banker and 
 bullion dealer) is London's free gold mar- 
 ket, what a wonderfully elastic and eco- 
 nomic currency the cheque system pro- 
 vides. But the most important and 
 essential part, viz., the relation of this 
 system to industry, its effect upon British 
 enterprise whether stimulating or deaden- 
 
THE LONDON GOLD MARKET 77 
 
 ing its cost to the nation, etc., in short, 
 the public side of the question, is ignored. 
 
 Banking, in the eyes of the banker and 
 his shareholders, may possibly be nothing 
 more than a dividend-making business, 
 first and last, but from the public stand- 
 point, it is a necessary part of the great 
 national economic machinery for the pro- 
 duction, exchange and distribution of 
 wealth. And the raison d'etre of the 
 banker and his institution upon whom 
 special privileges have been conferred by 
 British Governments, is to be justified by 
 showing that he is " doing his bit " in 
 supporting and developing British trade 
 and production. 
 
 Like all inventions, banking systems 
 are merely means to certain ends, and 
 they should be judged solely by their 
 efficiency in accomplishing those ends. 
 And just as an Eastern traveller, who 
 having confined his visits and observations 
 to some Sultan's palace with all its riches 
 and glories, without noticing the degrada- 
 tion, the poverty and misery of the in- 
 habitants, might write of the wealth and 
 
78 THE LONDON GOLD MARKET 
 
 prosperity of that country, so the average 
 financial authority is apt to write of the 
 marvellous success of our financial system, 
 because he has seen only the prosperous 
 side, the big dividends and the wealth 
 which thanks to our special laws our 
 bankers are able to amass, whilst the bank- 
 ruptcies and failures, the burdens and 
 anxieties which this system imposes on 
 labour and capital are unknown to him. 
 An example will make this clear. The most 
 popular and recent book on this subject 
 is The Meaning of Money, by Hartley 
 Withers, a well-known financial writer for 
 the Press and at present the holder of a 
 recently created office in the Treasury. 
 
 In a chapter extolling London's banking 
 methods, Mr. Withers instances the great 
 money crisis of 1907 which struck the 
 United States and created such havoc in 
 industrial, commercial and financial circles. 
 This crisis, which it is now known was 
 deliberately engineered by a clique of Wall 
 Street gamblers, reacted on all the money 
 markets of the world, particularly that of 
 London. " The business of managing the 
 
THE LONDON GOLD MARKET 79 
 
 exchanges of the world during commercial 
 crises," says Mr. Withers, " is obviously 
 thrown on London, as things are at present, 
 by its position as the only monetary city 
 which is prepared to produce gold on 
 demand." Gold was shipped from Europe 
 to New York in large quantities esti- 
 mated at some 25,000,000 sterling, ac- 
 cording to Mr. Withers most of which 
 went from London. As this amount would 
 have depleted the reserves of the Bank of 
 England, the bulk of it had to be drawn 
 from abroad by the usual method of raising 
 the bank rate. " It was," says Mr. 
 Withers, " a very remarkable demonstra- 
 tion of London's complete control over the 
 world's exchanges " since " four-fifths of 
 the amount shipped to the United States 
 were supplied by foreign contributions." 
 He adds : 
 
 " It was thus shown by the events of this memor- 
 able crisis, that London's tremendous responsibility 
 of providing gold when it is required anywhere by a 
 pressing emergency, is one that can be bravely and 
 cheerfully borne as long as England is in a position, 
 by applying sufficient twists of the monetary screw, 
 to force other nations to contribute their share to the 
 common necessity." 
 
 TJT. o 
 
80 THE LONDON GOLD MARKET 
 
 Now this is very comforting and re- 
 assuring to the reader who knows little 
 or nothing of the practical side of the ques- 
 tion. But the most interesting part of 
 the story has been conveniently omitted. 
 It is true that our banks " weathered the 
 financial storm with ease," as the late 
 Lord Avebury expressed it, but at whose 
 expense ? The bank rate was raised to 
 7 per cent., and kept there for nearly 
 three months, and although this enabled 
 the banks to " weather the storm " by 
 acquiring gold from abroad, incidentally 
 it ruined hundreds of British merchants 
 and producers and played havoc with our 
 trade generally. 
 
 If there is any truth in the statements 
 made so frequently, that every advance 
 in the bank rate of 1 per cent, costs 
 British borrowers somewhere between 
 50,000 to 100,000 per week, then this 
 " twisting of the monetary screw to force 
 other nations to contribute their share to 
 the common necessity " served also to 
 squeeze from the British producers some- 
 where between 2,500,000 and 5,000,000 
 
THE LONDON GOLD MAKKET 81 
 
 in the shape of increased interest charges, 
 to enable our bankers to save the American 
 banks from the result of the machinations 
 of a gang of unscrupulous Wall Street 
 gamblers ! But this is only a part of the 
 story. When the bank rate runs up, as 
 it did in 1907, all our banks begin reducing 
 overdrafts, and refuse accommodation to 
 thousands of British merchants and manu- 
 facturers who are often in sore need of 
 such help. In consequence, enterprise is 
 checked, production decreases, workmen 
 are thrown out of employment or put on 
 half-time, the public reduces its demand 
 for goods, and business generally is de- 
 pressed ! Moreover, it takes months, and 
 sometimes years, for the nation to recover 
 from the effects of such a crisis. If the 
 total losses caused to this nation by the 
 1907 panic could have been carefully esti- 
 mated, it would have been found to far 
 exceed in amount all the gold sent by our 
 philanthropic bankers to save the American 
 bankers from the just punishment their 
 recklessness and unscrupulousness deserved. 
 The necessity which our bankers find 
 
82 THE LONDON GOLD MARKET 
 
 imposed upon them of rendering aid to 
 foreign banks during financial crises, is one 
 of the penalties this country is compelled 
 to pay for the questionable advantage of 
 maintaining a free gold market the only 
 one in the world. 
 
 Perhaps it will be convenient at this 
 point to deal, once and for all, with this 
 question of a free gold market. The bank- 
 ers' bogy, which is invariably raised when- 
 ever a drastic change is proposed in our 
 banking or currency laws, is the fear that 
 London may cease to be the world's mone- 
 tary centre. Any interference with the 
 system which compels us to provide a free 
 gold market (chiefly for the convenience 
 of foreigners) is represented as fraught 
 with the gravest commercial and financial 
 dangers to this country. What advantage 
 is it then to our industries, our trade and 
 commerce that London should maintain its 
 financial position as the world's banking 
 centre ? Soon after the United States 
 currency crisis, the present writer put this 
 question to the late Mr. Arthur Lee, a well 
 known financial and commercial authority 
 
THE LONDON GOLD MARKET 83 
 
 Who had given years of study to this parti- 
 cular subject. The reader need hardly be 
 reminded of the vast importance of this 
 particular question especially at this time 
 when we are threatened with a stupen- 
 dous trade war at the conclusion of hostili- 
 ties. As our industrial and commercial 
 classes will not be able to afford to carry 
 any unnecessary burdens, it is wise now 
 to consider closely whether this luxury of a 
 free gold market is worth to the nation 
 what it is costing. 
 
 Mr. Arthur Lee was a member of the 
 London Chamber of Commerce and at one 
 time President of the Bristol Chamber of 
 Commerce, and in reply to an inquiry as 
 to what advantages, if any, our free market 
 for gold conferred upon British trade and 
 industries, he wrote : 
 
 " It would be true to say that a free gold market in 
 London is of assistance in securing to us such advan- 
 tages as may accrue from London being the clearing 
 house of the world. So long as London is the market 
 of the world where gold may be most freely bought 
 and sold, and so long as a monopoly is conferred upon 
 gold in respect to its debt-redeeming power, so long 
 will the exchange bankers and bullion dealers retain 
 the enormously profitable financial business in which 
 they have been engaged ever since modern laws con- 
 
84 THE LONDON GOLD MARKET 
 
 ferred a monopoly value upon gold. This would be 
 an exact and truthful statement of the case. When- 
 ever the pronoun ' we ' is used, I am always tempted 
 to ask the question, who are ' we ' ? I have heard 
 from the lips of a working man words somewhat similar 
 to those you say you found in a recent article on the 
 subject of ' London's Free Gold Market.' I asked 
 him if he had thought whether ' we ' included him- 
 self, and if not, would it not be well for purposes of 
 argument if he used the correct noun instead of an 
 incorrect pronoun ? The advantages of a free gold 
 market to certain classes are obvious enough, but the 
 advantages to the country as a whole are counter- 
 balanced by such serious disadvantages that it seems 
 probable that the latter outweigh the former. The 
 
 1 . The expenditure in this country of the profits 
 made by a very small class of financiers (mostly 
 cosmopolitan) . 
 
 "2. The deposit in this country of balances due 
 to foreigners, payable on demand, or at very short 
 notice. 
 
 "3. The ready negotiability in a foreign country 
 of a bill of exchange payable in London. This may 
 possibly enable a British x buyer to buy foreign goods 
 at a lower price than a buyer in another country. 
 
 " The disadvantages are : 
 
 "1. The constant disturbance to business caused 
 by rapid fluctuations in the rate of discount. 
 
 "2. The opportunity given to foreign speculators 
 to make profit at the expense of traders in this coun- 
 try by manipulating the open gold market. 
 
 1 London bankers have never discriminated against 
 foreigners in favour of British merchants. A foreign 
 buyer can as readily arrange to have his bills drawn on 
 London as the British buyer, and so obtain the same 
 advantages. No one can rightly accuse London bankers 
 of any excess of patriotism ! A. K. 
 
THE LONDON GOLD MARKET 85 
 
 "3. The draining of the savings of the people con- 
 fided to country bankers in the direction of Lombard 
 Street and thence to the financing of foreign specu- 
 lators. 
 
 "4. The discouraging of what is termed ' the fixing 
 of capital ' in this country, which is another term 
 for money sunk in sowing the seed which will spring 
 up for the future benefit of our home industries. 
 
 "5. The financial danger to the country of hold- 
 ing upon loan large floating balances payable on 
 demand, or at short notice, to foreigners. 
 
 " The advantages and disadvantages of a free gold 
 market may be shortly summed up thus : It gives us 
 facilities for getting into debt, and it places debtors 
 peculiarly at the mercy of creditors." 
 
 This letter appears to me to give a fair 
 and complete summary of the whole ques- 
 tion. As to the enormous value our bank- 
 ing methods and free gold market have 
 been to foreigners particularly to the 
 Germans, in creating German industries 
 which have successfully competed with 
 our own, the following extract from Mr. 
 Hartley Withers' Meaning of Money will 
 show: 
 
 " Foreign financiers were quick to detect the ad- 
 vantages of the English credit system and to turn 
 them to their own profit and to the furtherance of the 
 trade of the countries that they represent. It is 
 often contended that the rapid expansion of German 
 trade, which pushed itself largely by its elasticity and 
 adaptability to the wishes of its customers, could never 
 
86 THE LONDON GOLD MARKET 
 
 have been achieved if it had not been assisted by cheap 
 credit furnished in London, by means of which German 
 merchants ousted English manufacturers with offers 
 of long credit facilities to their foreign customers." 
 
 Could any indictment of our banking 
 system be stronger than the words I have 
 here italicized ? 
 
WAR AND THE BANKERS 
 
CHAPTER VI 
 
 (February 11th, 1916) 
 
 WAR AND THE BANKERS 
 
 THE present safety and strength of British 
 Banks is due neither to the so-called " gold 
 basis," nor to the ability or honesty of the 
 men who manage them, but to the public 
 belief that underneath the ridiculously 
 small quantity of gold which is nothing 
 more than a very thin veneer, in compari- 
 son with the credit resting on it rests the 
 national credit comprising the entire wealth 
 of Great Britain. Our legal tender paper 
 money is "as good as gold," not because 
 the Bank of England holds sufficient gold 
 for its redemption which, of course, it 
 never does, nor anything like sufficient 
 but because this money is backed by over 
 18,000,000,000 of wealth of every de- 
 scription ! 
 
 If Great Britain had been blessed at any 
 
 89 
 
90 WAE AND THE BANKERS 
 
 time during the past half-century with a 
 statesman who really understood this sub- 
 ject, and who had had sufficient indepen- 
 dence and moral courage, the present 
 system would have been scrapped, and a 
 sound, rational banking system would have 
 replaced it which nothing could shake. 
 What basis for bank credit can be safer 
 or stronger than the national wealth ? 
 Which would a foreign Power prefer, the 
 guarantee of a London bank or that of the 
 British Government ? How determined 
 British bankers were that the obvious 
 lesson of the 1914 crisis should be construed 
 to their advantage may be seen from the 
 writings of one of their most able apolo- 
 gists, Mr. Hartley Withers. Mr. Withers' 
 book War and Lombard Street was published 
 at the end of 1914, and here is his diagnosis 
 of the trouble and the lesson he wishes us 
 to learn. In his preface he says : 
 
 " I only produce this brief outline, because there 
 is one good reason for trying to make the meaning 
 of these events clear at once. This is, that they gave 
 a wonderful proof of the enormous strength of Eng- 
 land's monetary power, and a full recognition of 
 their strength may be useful now." 
 
WAR AND THE BANKERS 91 
 
 In his first chapter (page 3) he says : 
 
 " It (the financial crisis of July and August, 1914) 
 was an unpleasant string of surprises, but it was not 
 brought about by any internal weakness in the Eng- 
 lish banking system. The fury of the tempest was 
 .such that no credit system could possibly have stood 
 up against it. In fact, as will be shown, the chief 
 reason for the suddenness and fullness of the blow 
 that fell on London was nothing else but her own 
 overwhelming strength. She was so strong, and so 
 lonely in her strength that her strength overcame 
 her. She held the rest of the world in fee with so 
 mighty a grip that when she said to the rest of the 
 world ' Please pay what you owe me,' the world 
 could only gasp out ! But how can I pay you if you 
 don't lend me the wherewithal ? " 
 
 CURIOUS REASONING 
 
 It is a little difficult to know how to 
 answer such reasoning. Let us examine 
 the author's version of these important 
 events. Financial authorities have been 
 educating the public to believe that the 
 safety of bank credit is due entirely to the 
 fact that it is all redeemable in gold on 
 demand. They have also fostered the belief 
 that credit, unsupported by gold, is dan- 
 gerous. They talk of Germany's " paper 
 money pyramid " as worthless. Naturally, 
 therefore, as soon as the Balkan trouble 
 arose in the summer of 1914, the holders 
 
92 WAR AND THE BANKERS 
 
 of cheques, bills, promissory notes and 
 other forms of credit took the bankers at 
 their word and rushed to have these credit 
 instruments redeemed in gold. And the 
 bankers couldn't produce 5 per cent, of the 
 gold needed ! The hollow pretence of gold- 
 redemption was at once exposed. Any 
 commercial firm unable to meet its bills of 
 acceptance when due is considered unsound, 
 and is forced into liquidation, and the fact 
 that various sums are due to the firm but 
 unavailable is insufficient to save it. Why 
 does not the same rule apply to the banks ? 
 Every one knows that the moratorium was 
 a confession of insolvency for the time 
 being and ruin was only avoided through 
 Mr. Lloyd George's prompt assistance in 
 offering the national credit as security, 
 and in issuing an abundance of one pound 
 and ten shilling notes as legal tender a 
 measure suggested years ago by the late 
 Lord Goschen and vigorously opposed by 
 Lombard Street and Threadneedle Street. 
 Our banking system is surely reduced 
 to hard straits when excuses, like those 
 made by Mr. Hartley Withers, are offered 
 
WAR AND THE BANKERS 93 
 
 as an explanation of the crisis of 1914 ! 
 Expressed in plain terms, the gist of Mr. 
 Withers' argument is as follows : Whilst 
 the payment of obligations in gold on demand 
 may be an evidence of financial strength, 
 the inability to do so is an evidence of " over- 
 whelming strength / " Mr. Withers even 
 intimates that the crisis was due to the 
 " madness or wickedness " of the public in 
 demanding fulfilment of the bankers' ob- 
 ligations ! 
 
 AN ANALOGY' 
 
 Supposing the captain of a passenger 
 ship should advise his passengers that in 
 time of danger their only safety lay in 
 each one possessing a ship's life belt, why 
 should he consider it an evidence of their 
 madness or wickedness if during a heavy 
 storm or collision there should be a general 
 rush for life belts ? And what would one 
 say, if, when the ship was sinking and the 
 passengers had discovered that there were 
 not enough life belts for even 5 per cent, 
 of those on board, the captain should say 
 to those doomed to be drowned : " My 
 friends, your fate is not due to any c in- 
 
94 WAR AND THE BANKERS 
 
 herent weakness ' in our method of safe- 
 guarding the lives of those committed to 
 our charge. The truth is, your predica- 
 ment is a ' wonderful proof ' of its c over- 
 whelming strength. 5 We have a monopoly 
 of life belts, but we don't happen to have 
 more than a few here. We lend them to 
 other shipowners, and our position is so 
 ' overwhelmingly strong ' that we are al- 
 ways lending and consequently we can 
 never keep more than a small percentage 
 for ourselves ! " 
 
 Can we wonder that the so-called " Gre- 
 sham Law," which is a complete denial of 
 the law of efficiency, is accepted as a mathe- 
 matical axiom among men who can reason 
 in the fashion of this financial expert ? If 
 our " overwhelming strength " is due to 
 the uncollected amount of gold owing to 
 us, what becomes of the much-vaunted 
 " payable on demand " claims ? The Gre- 
 sham Law which is another of the many 
 economic fallacies found in orthodox finan- 
 cial treatises, and which has done duty for 
 the bankers for several centuries ought 
 to be given its quietus. Put into plain 
 
WAR AND THE BANKERS 95 
 
 English, it means that the only good 
 money is that which the bankers provide 
 or promise to provide. This " law " says, 
 " bad money drives out good money, but 
 good money cannot drive out bad money." 
 The acceptance of this " law " depends 
 entirely upon one's interpretation of the 
 terms " good " and " bad." It was ob- 
 served centuries ago that where a cheap 
 money (that is, clipped coins, paper money) 
 was circulating freely, any attempt to cause 
 the circulation of gold coins of full weight, 
 failed, because there were always enough 
 smart and tricky people about to melt or 
 clip such " good " coins and make a profit 
 by selling the gold clippings. And natur- 
 ally if paper was acceptable as currency 
 it was extravagant to use an expensive 
 metal like gold. 
 
 THE GBESHAM LAW. 
 
 Now the curious thing about this law is, 
 that it is contradictory to all the laws of 
 efficiency, evolution, and common sense. 
 To take one out of thousands of every-day 
 examples : Roofing material formerly con- 
 
 T.F. 
 
96 WAR AND THE BANKERS 
 
 sisted of expensive metals, such as lead and 
 copper. This gave place to tiles and slat- 
 ing which were much cheaper and far more 
 sanitary. According to " Gresham's Law," 
 " bad " roofing has driven out " good " 
 roofing. Similarly cheap Bessemer steel 
 has driven out expensive wood, brass, and 
 stone, for thousands of purposes, thereby 
 increasing the safety and comforts of 
 society. In the language of the " Gre- 
 shamites," this means that " bad " material 
 has driven out the " good." Cheap paper 
 printing and bookbinding have driven out 
 expensive parchment, engrossing and en- 
 graving. Hence the " bad " printing press 
 and machinery have driven out the " good " 
 handicraft ! In all the ordinary affairs of 
 life we judge of the comparative merits of 
 two things by actual trial, and the one 
 that survives is pronounced the better, 
 that is better for the conditions under 
 which the trial was made. Why should 
 money be any exception to this general 
 rule ? If paper money can perform all the 
 functions of a gold currency, why use the 
 expensive metal ? As a matter of fact. 
 
WAR AND THE BANKERS 97 
 
 to-day, 98 per cent, of our currency is 
 paper, and the alleged necessity for gold is 
 a pretence, but it enables the bankers to 
 draw the same interest for the use of paper 
 that they charge for the use of gold. This I 
 believe is the real secret of their insistence 
 on maintaining the so-called " gold basis." 
 
 Had Sir Thomas Gresham been born 
 two centuries later, his observations on 
 currency would doubtless have led him to a 
 totally different conclusion from that ex- 
 pressed in the so-called " law " which goes 
 by his name. He would most probably 
 have formulated his conclusions as follows : 
 
 " Our greatest philosopher, Sir Isaac 
 Newton, has shown us that the direction 
 of motion is always along the line of least 
 resistance. Applying this truth to the 
 industrial world, to the activities of man- 
 kind, we find that men always seek to 
 gratify their wants with the least expendi- 
 ture of energy. Expressed in economic 
 terms, the tendency of industry and trade 
 is constantly towards cheapness towards 
 the abolition of value. Under free condi- 
 tions, therefore, cheap money must neces- 
 
98 WAR AND THE BANKERS 
 
 sarily drive out dear money. This follows 
 from the teachings of philosophy and is 
 confirmed by experience and observation." 
 " Cheap " money does not necessarily mean 
 money that is inefficient. Steel is enor- 
 mously cheaper than gold, but a steel 
 bridge is infinitely safer and better than one 
 of gold. Financial writers like Withers 
 who extol our bank cheque currency, 
 are unconsciously denying the validity of 
 the Gresham Law which they profess to 
 uphold. Cheque currency is the cheapest 
 form of money ever known, and has driven 
 out gold currency to an extraordinary 
 extent. And but for our legal tender 
 laws, gold currency would disappear en- 
 tirely. As long as it performs the function 
 of money, cheap money is the best money, 
 and must of necessity drive out dear money. 
 Much satisfaction has been enjoyed by 
 our Press over Sir Edward Holden's reply 
 to the bombastic speeches of Herr Hel- 
 ferich, the German Minister of Finance. 
 Sir Edward's reply is said to be " crush- 
 ing." No doubt our enemy is getting into 
 serious financial difficulties. The mark is 
 
WAR AND THE BANKERS 99 
 
 falling rapidly in comparison with the 
 monetary units of neutrals. He may al- 
 ready have had to sell all his investments 
 abroad. He may have to part with all his 
 gold. But, I repeat what I have said in a 
 previous article, so long as our enemy's 
 industrial and productive activities re- 
 main unimpaired, so long as he is permitted 
 to exchange his products in sufficient 
 quantities for such material and goods 
 which he cannot produce and which are 
 necessary for his food and manufactures, 
 he cannot be economically destroyed, even 
 if the mark should lose 90 per cent, of its 
 former value ! A nation can exist without 
 gold a metal which, except for use in 
 certain arts such as jewellery and dentistry, 
 is probably the most useless and most 
 readily dispensable we have. 
 
 Let us give the Devil his due. Let us 
 reverse the conditions. Supposing Ger- 
 many had destroyed our Navy and block- 
 aded our coasts, where would our precious 
 banking system be to-day ? Where would 
 our pound sterling be ? Does any one 
 imagine that our banking system would 
 
100 WAR AND THE BANKERS 
 
 have stood the strain that Germany's has 
 without crumpling up ? We have seen 
 that before a single shot was fired our 
 system collapsed ! Indeed, the London 
 banks depend absolutely upon foreign com- 
 merce backed by the credit of a wealthy 
 nation possessing the freedom of the seas, 
 without which our gold supplies could 
 never be renewed. Were our coasts block- 
 aded they would collapse in a week ! 
 
 A REAL COMPARISON 
 
 The real comparison of Germany's bank- 
 ing system with that of Great Britain's is to 
 be found in their relation to the industries 
 of each country respectively. The Ger- 
 mans themselves admit that they owe their 
 unprecedented commercial and industrial 
 development largely to the policy of their 
 bankers. Judged by the highest standard 
 namely, the development and growth of 
 a nation's industries it must be admitted 
 that the German system has proved itself 
 to be immeasurably superior to ours. Do 
 our bankers intend to assist British manu- 
 facturers to capture German trade in the 
 
WAR AND THE BANKERS 101 
 
 future ? If they do, they must alter their 
 policy. Which is better for a nation, the 
 possession of great and varied manufac- 
 tures, of numerous engineering works, ship- 
 building yards, electrical undertakings and 
 general industries, or a monopoly of the 
 world's banking business ? 
 
 How much employment does the latter 
 give in comparison to the former ? Would 
 either the United States or Germany be 
 willing to exchange its iron, steel and 
 electrical industries for the whole of our 
 banking business ? Is it not better for a 
 nation morally, pecuniarily, physically and 
 socially to be able to employ its people as 
 scientists, agriculturists, mechanics, engi- 
 neers, chemists, electricians than as bank 
 clerks, chauffeurs, footmen and butlers ? 
 I repeat that the thing that matters to us 
 is, whether our industrial and productive 
 activities are to be developed ? Are we 
 producing commodities, food, minerals and 
 other necessities as well as manufactured 
 goods in sufficient quantities to meet the 
 public needs, and to meet the national 
 expenses ? 
 
102 WAR AND THE BANKERS 
 
 The loss of our banking monopoly may 
 injure a few hundred or at most a few 
 thousand people. But our loss of the 
 world's markets in trade and commerce 
 will mean the beginning of the downfall of 
 the British Empire. 
 
THE GOLD FETISH 
 
CHAPTER VII 
 (March 2nd, 1916) 
 
 THE GOLD FETISH 
 
 THE annual meeting of the Associated 
 Chambers of Commerce will mark an im- 
 portant step in our foreign trade policy. 
 The members of our commercial bodies 
 are fully aroused to the necessity of pre- 
 paring for the coming trade war which will 
 be waged relentlessly at the conclusion of 
 present hostilities. The most urgent ques- 
 tion, however, which will doubtless occupy 
 the attention of these bodies will be the 
 establishment of industrial banks for as- 
 sisting British merchants in extending their 
 trade and commerce throughout the world. 
 Tariff measures will prove of little avail 
 against the enemy, unless accompanied by 
 a radical change in our banking and finan- 
 cial methods. 
 
 105 
 
106 THE GOLD FETISH 
 
 Many members of our Chambers of Com- 
 merce have written expressing their interest 
 in and in many cases their agreement 
 with the articles on the Banking Question 
 in LAND AND WATER. Some correspon- 
 dents, however, "have expressed surprise 
 that they have been devoted principally 
 to a criticism of our existing financial 
 system, whilst little has been said to 
 indicate what system should replace the 
 present one. To such critics it is sufficient 
 to say, that before one can erect a new 
 building on the site of an old one, it is 
 necessary first to clear away all the rubbish 
 and obstructions. 
 
 Our banking system, as I have hitherto 
 pointed out, is founded on several glaring 
 fallacies. It is the product of greed, ignor- 
 ance and superstition. I have already 
 exposed one or two of these fallacies, such 
 as the gold basis fiction, and the so-called 
 Gresham Law, but other errors equally 
 glaring remain to be exposed and eradicated 
 before we can attempt to replace the pre- 
 sent institution with a better one. 
 
THE GOLD FETISH 107 
 
 FALLACIOUS PRINCIPLES 
 
 Already many proposals have been 
 offered to the Government regarding what 
 their authors believe would prove salutary 
 changes in our credit and monetary arrange- 
 ments, but these proposals are not likely to 
 receive serious consideration by the authori- 
 ties until the current theories and principles 
 of finance are shown to be fallacious. 
 
 The chief object of the writer of these 
 articles is to endeavour to convince the 
 British public not only that the existing 
 financial system is inadequate, dangerous 
 and costly, but that owing to the false 
 teachings of financial writers, the public 
 has been defrauded of the free use of its 
 own credit for industrial and commercial 
 purposes. Since the war started, events 
 have shown that the credit of Great Britain 
 is worth several thousands of millions of 
 pounds sterling. On the other hand, the 
 credit of all the British banking companies 
 combined is only a fraction of that of the 
 British nation. How is it then that the 
 British Government compels the nation to 
 sell its superior credit for bank credit and 
 
108 THE GOLD FETISH 
 
 pay interest charges for the exchange ? 
 That " the whole is greater than a part " 
 is an elementary mathematical axiom. 
 Why does not the axiom hold good in 
 financial matters ? 
 
 The credit of Great Britain comprises 
 that of all the British people and its institu- 
 tions. Why then does the Government 
 enter into such an apparently foolish bar- 
 gain as the exchange of the more valuable 
 credit for the less valuable and pay a 
 premium ? The answer is that the gold 
 superstition still dominates the minds, 
 not only of the Government, but of the 
 vast majority of the citizens of this country. 
 The average man still believes that there 
 is some special virtue in gold when used 
 for currency purposes which does not exist 
 in paper. It is the prevalence of this 
 superstition that has cost this country 
 untold millions in interest charges which 
 might have been saved. And just as the 
 poor benighted heathen are victimized by 
 their priests and sorcerers and induced to 
 pay to have their homes freed from imagin- 
 ary devils and evil spirits, so the average 
 
THE GOLD FETISH 109 
 
 Britisher has been willing to pay for the 
 use of gold where paper would have 
 answered equally well and would have 
 facilitated his business to precisely the 
 same degree. 
 
 The late Chancellor of the Exchequer is 
 reported to have boasted in a recent speech 
 in the House of Commons that every 1 
 note issued by the Government is redeem- 
 able in gold on demand. It is to be hoped 
 the public will not take Mr. McKenna at 
 his word, otherwise we shall have a repeti- 
 tion of the midsummer crisis of 1914. The 
 inference the Chancellor wishes us to draw 
 from his statement is, that our legal tender 
 notes are valuable because they can be 
 redeemed in gold. So long as this super- 
 stition prevails, so long will our producing 
 classes be taxed for the use of credit and 
 currency, which, under more enlightened 
 conditions, they might have at practically 
 little or nothing save the cost of service 
 plus a small tax for insurance. 
 
 ACTUAL FACTS 
 Let us at once face the actual facts. // 
 
110 THE GOLD FETISH 
 
 in the future our currency and credit are to 
 be based on gold, and if they are to be made 
 redeemable in gold on demand, then our 
 industries, our trade and commerce must be 
 restricted. In other words, the limit of enter- 
 prise and industry must be the amount of 
 gold that our banks are able to control and are 
 willing to make available, and as for capturing 
 German trade, we may as well abandon all 
 our efforts. On the other hand, if the people 
 of this country hope greatly to increase their 
 trade and commerce, if they have any serious 
 intentions of capturing German trade, the 
 gold basis will have to be abandoned as being 
 insecure and insufficient, and the much safer 
 and broader basis of the national credit will 
 have to replace it. 
 
 The statement made by Mr. McKenna 
 regarding the ability of the banks to re- 
 deem their obligations in gold has already 
 proved to be incorrect. The real test was 
 made at the end of July and the beginning 
 of August, 1914, and nothing has happened 
 since then to invalidate or alter the result 
 of that test. Of course, what Mr. McKenna 
 means and what the bankers undoubtedly 
 
THE GOLD FETISH 111 
 
 mean when they speak of " gold redemp- 
 tion " is, that so long as the public is con- 
 tent to take gold in small quantities, the 
 banks are able to perform their obligations. 
 If the question of time be eliminated, any 
 bank might undertake to issue a million 
 pounds of credit on a gold reserve of one 
 hundred pounds. But in financial matters, 
 time is always the essence of the contract. 
 If the public demand gold redemption, they 
 want redemption immediately on demand 
 and not some months later at the banker's 
 convenience. 
 
 It would undoubtedly be possible in the 
 course of six months for London Bridge 
 to carry all the traffic that now passes 
 across the Thames in a single month. 
 Supposing during a Zeppelin raid all the 
 Thames bridges were destroyed except one. 
 Naturally the traffic would be seriously 
 disorganized. At the same time, this one 
 remaining bridge would no doubt enable 
 the traffic to continue, although greatly 
 reduced, and at very serious cost and delay 
 to the London merchants and manufactur- 
 ers. The same is true in regard to the 
 
 T.F. i 
 
112 THE GOLD FETISH 
 
 redemption of credit in gold. In short, 
 the gold standard and the gold basis mean 
 that trade and commerce must be cut down 
 solely in the interests of the money-lending 
 classes, in order that they may be allowed to 
 continue their control of credit. 
 
 A SERIOUS INDICTMENT 
 One of the most serious indictments 
 brought gainst the gold basis will be found 
 in a paper x read by Sir Edward Holden of 
 the London City and Midland Banking Co. 
 before the Liverpool Bankers' Institute in 
 December, 1907, immediately after the 
 United States currency panic. I cannot 
 do better than reproduce Sir Edward's 
 explanation of the depreciation of securities 
 in gold at that time. His illustrations form 
 one of the most complete exposures of the 
 blighting and depressing effects upon trade 
 and industry exercised by this gold super- 
 stition, ever published. Sir Edward illus- 
 trated the condition of the banks by a 
 triangle which showed that credit is neces- 
 sarily restricted by gold regardless of the 
 enormous wealth possessed by the nation 
 
 1 The Depreciation of Securities in Relation to Gold. 
 
THE GOLD FETISH 113 
 
 in other forms. He first states what is 
 often forgotten that loans create bank 
 credits, and if we regard all the banks in 
 London as one, the business of banking 
 becomes little more than a matter of book- 
 keeping the transfer of credit from one 
 person to another. He then proceeds as 
 follows : 
 
 " The right side of the triangle represents the 
 loans of the whole of the banks, and the left side 
 represents the cash balance or reserve. If, then, you 
 draw a line from the left of the base and equal to 
 the base, you get the cash credits in existence. If 
 the loans and credits as represented by the two sides 
 of the triangle were the only two elements which 
 bankers had to take into consideration, then there 
 would be no necessity for them to restrict their loans 
 at all, and traders could increase their business and 
 obtain loans ad libitum. But there is another ele- 
 ment, and a most important one, to be taken into 
 consideration, and it is the fact that all the credits 
 as represented by the left side of the triangle and the 
 line drawn from the base, are practically payable on 
 demand and in gold, assuming of course, that Bank 
 of England notes represent gold. 
 
 " Every banker must, therefore, make up his mind 
 by what amounts his credits are liable to be diminished, 
 both in ordinary and extraordinary times, and when 
 he has thus made up his mind, he ought to keep that 
 amount of available resources in gold, or as a means 
 of obtaining gold. Let us consider, then, that the 
 base of the triangle consists of gold, and it is the 
 ratio of the base of the triangle to the total credits 
 (both created and cash credits) which restrict bankers 
 
114 THE GOLD FETISH 
 
 from increasing unduly their loans. If business 
 increases unduly, and if bankers continue to increase 
 the loan side of the triangle, of course concurrently 
 increasing their credits, and not being able to increase 
 the gold base of the triangle, then evidently they are 
 getting into danger, and the only judicious course 
 which they can pursue is to curtail their loans, cur- 
 tailing an undue increase of business, which curtails 
 the credits, and thus re-establish the ratio. 
 
 " You here see the direct connexion between trade 
 on the one hand and gold on the other, and that it 
 is not so much the production of gold as the amount 
 of gold which can be obtained for the purpose of in- 
 creasing the bankers' reserves. I venture to think 
 that the above explanation will enable you to come 
 to the conclusion that, if the gold base of the triangle 
 cannot be increased, then the danger spot is the LOAN. 
 
 " I want you to remember that the banking system 
 of every country has its triangles, and that the prin- 
 ciples enunciated above exist in every triangle of 
 every banking system based on gold in the world ; 
 that being so, it is clear, generally speaking, that the 
 business of the world is carried on by means of loans, 
 that loans create credits, that the stand-by for the 
 protection of credits is gold, and that therefore gold 
 controls trade. 
 
 " It may happen that the trade of one country 
 grows by leaps and bounds, the loans and credits, 
 of course, following, while the trade of other coun- 
 tries remains normal. What, then, takes place ? 
 The gold base of the triangle of the former becomes 
 too small, and it is necessary to enlarge it. How is 
 the increase effected ? It is effected by the repre- 
 sentative bank of the more prosperous country 
 attacking the gold basis of the triangle of other coun- 
 tries, and the instrument by which the attack is made 
 is the rate of discount. By this means gold will 
 be attracted from the bases of the triangles of other 
 countries, and unless those bases are too great foff 
 
THE GOLD FETISH 115 
 
 the adequate protection of the credits, the represen- 
 tative banks of those countries will meet the attack 
 by also putting up their rates. But it may happen 
 that the trade of every country has increased by leaps 
 and bounds, and that all loans and credits have also 
 increased. Then the fight begins by every country 
 putting up its rate, first to prevent its base being 
 diminished, and, secondly, to increase it if possible." 
 
 Let us clearly understand the meaning of 
 this very lucid and truthful illustration. 
 Our producing classes are being urged to 
 do their best to capture German trade. 
 Now, no extension of trade is possible 
 under present conditions except through 
 the increase of bank loans. Supposing 
 that these loans are granted and the enter- 
 prise, skill, and industry of our people are 
 rewarded by a great increase in trade. 
 What certainty have they that they will 
 be permitted to keep this trade ? And 
 what is to limit this trade increase ? 
 
 The answers are (1) that since trade 
 depends upon the credit allowed by the 
 banks, which in turn depends upon the 
 amount of the gold reserves, there is abso- 
 lutely no certainty. (2) That the limit is 
 gauged neither by the enterprise of our 
 people nor the extent of the markets open 
 
116 THE GOLD FETISH 
 
 for British goods, but by the same acci- 
 dents, events and conditions which make 
 all our industrial operations so uncertain, 
 viz., the imports and exports of gold. 
 Now London is the only free gold market 
 in the world. Supposing therefore that 
 after the war, Germany or the United 
 States, or both, determine to wage a relent- 
 less commercial war for the world's mar- 
 kets. Not only will they attack by en- 
 deavouring to undersell us, but they will 
 try to cripple us in our most vulnerable 
 spot : viz., our gold market. By with- 
 drawing gold from London they can compel 
 our banks to reduce their loans to British 
 merchants, and our efforts at capturing 
 German trade will be fruitless. And the 
 only weapon of self-defence our bankers 
 control is the bank rate ! 
 
 If we apply Sir Edward Holden's con- 
 clusions to the figure of an inverted 
 pyramid, we shall see at a glance how the 
 movements of gold affect our trade and 
 commerce. We have as before a compara- 
 tively small amount of gold supporting an 
 enormous volume of credit, bank loans, 
 
THE GOLD FETISH H7 
 
 etc., on which rests the vast business 
 interests of the nation. Now this volume 
 of credit is supposed to bear a certain 
 relation to the gold reserves held by the 
 banks. Exactly what this is, the public 
 can never tell, for the reason that only 
 two banks in London publish their gold 
 holdings, viz., the Bank of England and 
 the London City and Midland Bank, of 
 which Sir Edward Holden is its very able 
 chairman and managing director. 
 
 Of course, this relation necessarily varies 
 from time to time, but no banker would 
 go on indefinitely increasing his loans 
 without increasing his gold reserves. And, 
 vice versa, if his gold reserves are shrink- 
 ing the prudent banker will necessarily 
 be compelled to call in that proportion of 
 his loans corresponding to the reduction 
 in his reserves. Now the ratio of gold 
 to bank credit in practice is supposed to 
 vary from 10 to 20 per cent. Supposing 
 our foreign competitors succeeded in with- 
 drawing 5,000,000 in gold from the Bank 
 of England. The bank loans must be 
 reduced to the extent of 25,000,000 to 
 
118 THE GOLD FETISH 
 
 50,000,000 to preserve the previously 
 existing ratio. And by withdrawing this 
 credit, of course the trade and commerce 
 dependent on such loans are destroyed. 
 
 Sir Edward Holden's Liverpool address 
 was a very frank admission that the 
 gold basis together with our free gold 
 market places British trade and industry 
 at the mercy, not only of our trade 
 competitors, but of the bullion dealers 
 and speculators of the world ! His illus- 
 trations show that any long- continued 
 period of industrial prosperity is made 
 impossible by the restrictions imposed by 
 the gold-redemption system. He further 
 shows (no doubt unconsciously) that the 
 gold basis is a brake upon the wheels of 
 industry, continually interfering with the 
 rate of production. Here also is the ex- 
 planation of the phenomenon that periods 
 of prosperity are inevitably followed by 
 periods of depression. 
 
 Increased trade demands increased 
 banking facilities increased loans but the 
 moment credit is increased to meet this 
 demand, the gold reserves are strained, 
 
THE GOLD FETISH 110 
 
 the bank rate is raised, loans are called 
 in, the brake is applied to the wheels of 
 industry, production is checked, employees 
 are discharged, enterprise is discouraged, 
 and the extra demand for money and credit, 
 which prosperous times require, is choked 
 off! 
 
 In short, our financial system destroys 
 prosperity, and reduces trade to the amount 
 of gold available. So that the mechanism 
 of exchange, instead of facilitating trade 
 at all times, actually checks it. It first 
 stimulates industry, and then destroys it. 
 The gold basis has become both the life 
 and death of trade. 
 
INADEQUACY OF OUR BANKS 
 
CHAPTER VTII 
 (March 16th, 1916) 
 
 INADEQUACY OF OUR BANKS 
 
 FOR many years past British manufacturers 
 and merchants have complained of the 
 difficulty of obtaining adequate banking 
 facilities and of the unreasonable objections 
 made by their bankers to affording them 
 the accommodation their businesses re- 
 quired. These complaints have become 
 much more frequent and general since the 
 London Joint Stock banks invaded the 
 provinces in such force, and began their 
 policy of absorbing the private country 
 banks a policy which has proceeded at 
 an accelerating speed of late, until to-day 
 very few of the old private banks remain. 
 Without doubt, this policy has been pro- 
 ductive of great injury to the nation and 
 great hardship to hundreds of small pro- 
 ducers throughout Great Britain. 
 
 123 
 
124 INADEQUACY OF OUR BANKS 
 
 These country banks were the mainstay 
 of thousands of industries, and they were 
 conducted on a far more liberal and patriotic 
 scale than the London Joint Stock banks. 
 The country banker knew all his clients 
 personally, and was usually familiar with 
 their family history. He knew whom to 
 trust. He could easily distinguish between 
 the thrifty, industrious, enterprising man and 
 the extravagant, lazy and unprogressive in- 
 dividual. The country banker was usually 
 a leader in social affairs in his own town 
 or district, and took a personal pride and 
 interest in assisting in the development of 
 its industries. Whilst he was, perhaps, as 
 keen to make large profits as the London 
 bankers, his desire was tempered by a sort 
 of civic pride. It was very gratifying to 
 him to feel he was helping his neighbours 
 and fellow- townsmen, which ensured him 
 their esteem and gratitude. The demands 
 of borrowers in London or abroad were 
 not likely to induce him to forget those of 
 his own townspeople. In short, he usually 
 had a large amount of local as well as 
 national patriotism, ^ 
 
INADEQUACY OF OUR BANKS 125 
 
 SYMPATHY AND MUTUAL HELP 
 Those who have read Prince Kropotkin's 
 great work, Mutual Aid, will remember 
 what an immense factor sympathy, leading 
 to mutual help, has been in the develop- 
 ment of animal life. Sympathy has been 
 a similarly valuable factor in the develop- 
 ment of industrial and commercial affairs. 
 This factor was present, influencing the 
 conduct of the private banker. With the 
 advent of the soulless Joint Stock Com- 
 pany principle, this factor was utterly 
 destroyed. 
 
 The country banker frequently became 
 a shareholder in his town's local enter- 
 prises. All this greatly contributed to the 
 upbuilding and development of Britain's 
 industries. I have been told by many of 
 the farmers and country tradesmen how 
 comparatively easy it was for them to get 
 financial help from their private bankers 
 thirty or forty years ago. With the es- 
 tablishment of the London Companies' 
 country branches, all this is now changed. 
 In place of the local banker with his wealth, 
 power, local pride, knowledge and sym- 
 
126 INADEQUACY OF OUR BANKS 
 
 pathy, we have a manager who is usually 
 a stranger, and who knows little or nothing 
 of the townspeople themselves, who is 
 usually without any social or political 
 standing, and is powerless to grant any 
 considerable banking facilities without the 
 consent of his London board of directors. 
 His instructions are to secure all the deposit 
 accounts possible and send as much cur- 
 rency as he can to London. If it were 
 possible for a country manager to acquire 
 country deposits without having to grant 
 loans, the London banks would regard this 
 as an ideal condition. 
 
 Just as in the United States the great 
 bankers of New York and Chicago have 
 always endeavoured to denude the States 
 of cash in order to amass and control it in 
 their own cities, so the London banks have 
 tried to keep the stream of currency always 
 flowing in their direction. When it is 
 considered that this policy of denuding the 
 country districts of money is often for the 
 purpose of enabling the London banks to 
 grant loans to foreigners who are interested 
 in building up industries abroad which 
 
INADEQUACY OF OUR BANKS 127 
 
 successfully compete with our own, the 
 irony of the situation becomes apparent ! 
 From the national and patriotic standpoint 
 what can be more amazing than the know- 
 ledge that the savings of the British public 
 are being employed directly to cripple them 
 in their own trade and industries ? In a 
 former article I quoted from a well-known 
 financial writer a statement showing the 
 valuable assistance the London banks have 
 given to the Germans in building up their 
 vast businesses. This policy has been for 
 this country ruinous in the extreme. Al- 
 though it has probably helped to increase 
 the banks' dividends, it has blasted scores 
 of British industries. 
 
 RISK OF A MONOPOLY 
 
 The continual absorption of the smaller 
 banking companies by the large ones, 
 indicates that within a comparatively short 
 space of time the entire banking business 
 of Great Britain will be under the complete 
 control of one board of directors. This is 
 a national danger which should be pre- 
 vented at all hazards. It would constitute 
 
 T.F, K 
 
128 INADEQUACY OF OUR BANKS 
 
 a monopoly as far reaching and as inimical 
 to the public interests as that which 
 was exposed in the United States by a 
 Congressional Committee a few years 
 ago. 
 
 The monopoly of money is the greatest 
 of all monopolies, for it controls all others ! 
 It gives its controllers supreme power over 
 production, trade and commerce nay, over 
 life itself! Under modern conditions 
 money has been made indispensable to 
 every one. Such a monopoly ought to be 
 permitted to no one company or aggrega- 
 tion of companies. In the United States, 
 its effects have been shown in the corrup- 
 tion of political life, and in the omnipotence 
 it gives to men like the late Pierpont 
 Morgan, who was able to possess himself 
 of almost any branch of industry he desired. 
 The career of almost every one in America 
 was at his mercy. He could make and un- 
 make whom he chose, and woe to the man 
 who opposed him ! His power far exceeded 
 that of the President of the United States 
 himself. 
 
 If such a monopoly must exist, let it be 
 
INADEQUACY OF OUR BANKS 129 
 
 owned by the nation. Here is a legitimate 
 field for democratic control. For, even in 
 the hands of the State, a hanking monopoly 
 may be a source of infinite harm to the public, 
 unless it is properly and impartially con- 
 ducted for the interests of all classes dike. 
 Honestly and efficiently conducted, it would 
 prove one of the greatest institutions for the 
 development of trade, for effecting a more 
 equitable condition between capital and labour, 
 for improving social conditions and providing 
 an inexhaustible revenue for the State. 
 
 The policy hitherto pursued by our 
 Joint Stock banks has been to give facilities 
 to the strong and deny it to the weak. 
 Evidently they believe in the saying : 
 " Unto him that hath shall be given, but 
 from him that hath not shall be taken 
 away even that which he hath." The 
 object of this policy is to lend to those 
 only who are able to repay immediately 
 on demand. Hence the speculator, the 
 Stock Exchange gambler, can get accom- 
 modation where the producer would be 
 denied, 
 
130 INADEQUACY OF OUR BANKS 
 
 THE POLICY HITHERTO 
 I have known a manufacturer who, 
 having sunk his capital in plant, machinery, 
 and tools for producing necessary and 
 useful articles, was unable to proceed for 
 lack of banking accommodation which was 
 refused him on the ground that machinery 
 and tools are not considered banking 
 security. Had this man bought shares 
 and tried his luck as a gambler, he might 
 have secured banking facilities to his 
 heart's content. A system which discrimi- 
 nates against the production of wealth in 
 favour of gambling pure and simple, is 
 neither morally nor economically beneficial 
 to any country. 
 
 Let it be admitted at once that this 
 feature is not altogether the fault of the 
 bankers themselves. It is the natural 
 and combined results of the Legal Tender 
 Acts and the deposit system under which 
 the banks are compelled to agree to pay 
 depositors their claims on demand in legal 
 tender. Consequently it would be court- 
 ing bankruptcy for the bankers to lock 
 up all the money belonging to their de- 
 
INADEQUACY OF OUR BANKS 131 
 
 positors in investments they are unable 
 to quickly realize. Hence, preference is 
 given to short-time loans on gilt-edged 
 security. And this class of loan al- 
 though suitable to speculators and dealers 
 is unsuitable to the producing classes. 
 The farmer who needs money to buy his 
 seeds and fertilizers and agricultural ma- 
 chinery, cannot undertake to repay the 
 loan until he has sold his crops. A period 
 of months and even years must sometimes 
 intervene. What use is it to offer him a 
 sum of money if there is the remotest pros- 
 pect of the loan being called in, a few weeks 
 or months later ? This would simply mean 
 ruin to him. The banker would have to 
 sell the farm in order to realize the amount 
 of the loan. 
 
 A WELL-KNOWN FINANCIAL GAME 
 
 This practice is, however, a well-known 
 financial game which is frequently played 
 by unscrupulous moneylenders, and even 
 by many who pose as capitalists. How 
 many inventors, manufacturers and mer- 
 chants have been swindled out of their 
 
132 INADEQUACY OP OUR BANKS 
 
 life's earnings by financial vampires who 
 have advanced money on debentures, 
 mortgages or promissory notes, and then 
 swooped down on their luckless victims at 
 a time when they knew that these were 
 unable to repay the money ! Legal Tender 
 Acts may possibly have been intended by 
 their framers to facilitate trade and to 
 ensure equitable dealings between man and 
 man. But they have often been used as 
 instruments of the grossest frauds and the 
 cruellest oppression, enabling the financially 
 strong to rob and terrorize over the finan- 
 cially weak. 
 
 The history of finance is strewn with 
 the wreckage of myriads who have been 
 broken by these merciless laws, which 
 prescribe the particular instruments with 
 which debts must be settled, without 
 having made an adequate provision for a 
 sufficient supply of these instruments. The 
 Governments responsible for these Legal 
 Tender Acts do not appear to have given 
 much consideration to this phase of the 
 subject. Our currency legislators seem to 
 have been haunted with the fear of making 
 
INADEQUACY OF OUR BANKS 133 
 
 money cheap. So they made the condi- 
 tions for its creation as difficult as possible, 
 and chose as the money-metal one of the 
 rarest and most expensive, leaving the 
 public to the tender mercies of the few 
 privileged persons who happened to control 
 its supply. 
 
 For the development of a nation's in- 
 dustries, deposit banking is insufficient. 
 Long-time loans, so essential to those 
 engaged in starting and building up their 
 enterprises, are unsuited to those entrusted 
 with money returnable on call. Further, 
 the rigidity of the system under which 
 legal tender could be created prior to the 
 war, made long-time loans a somewhat 
 dangerous enterprise for the banker. Any 
 increase in the volume of legal tender 
 notes beyond the normal amount, had to 
 be accompanied by a corresponding in- 
 crease in the gold reserves often a difficult 
 and always an expensive proceeding. 
 
 GERMANY'S MORE ELASTIC SYSTEM 
 
 It is in this particular respect that the 
 German system has proved itself far more 
 
134 INADEQUACY OF OUR BANKS 
 
 elastic and suitable for industrial growth 
 than the English system. Notes issued 
 by the German Reichsbank required only 
 one-third of their nominal value in gold 
 and two-thirds in bills, the result being 
 that, as the necessities of trade expanded, 
 the means for supplying those necessities 
 grew with them, since the security for the 
 notes was furnished by the industries in 
 the form of bills of exchange. The in- 
 crease of the volume of uncovered notes 
 is also permitted on payment to the Im- 
 perial Government of 5 per cent, on all 
 such excess amounts. The result is, the 
 German bankers have had at their com- 
 mand sufficient credit to back German 
 trade and commerce to the fullest extent 
 without running into very great danger. 
 An industry that could earn more than 5 
 per cent, on any additional capital required 
 could, other things being satisfactory, 
 readily secure financial support. 
 
 With a million marks of gold reserves, 
 the German Reichsbank could issue three 
 million of legal tender notes, and on this 
 the bank could issue twelve million marks 
 
INADEQUACY OF OUR BANKS 135 
 
 of bank credit, whereas under our system 
 only one million of legal tender notes could 
 be issued against one million of gold re- 
 serves. And with an issue of four million 
 of bank credit the position of our banks 
 would be no safer than the German bank 
 with its issue of twelve millions ! For the 
 real basis of credit, in times of crises parti- 
 cularly, is legal tender based on the national 
 credit, and the public is satisfied with 
 paper money provided they know it is 
 legal tender for all debts, public and pri- 
 vate. 
 
 Consider the present position of the small 
 producer who is anxious to develop his 
 business. He has no gilt-edged security 
 to offer his banker, and therefore cannot 
 get the accommodation he requires. His 
 only alternative is the private moneylender 
 or promoter, to whom as security he must 
 deliver up practically his soul. The money- 
 lender points out the great risk he is run- 
 ning and makes his interest charges cor- 
 respondingly high. After a few months, or 
 perhaps years, of struggle, during which 
 the producer has been handicapped by the 
 
136 INADEQUACY OF OUR BANKS 
 
 burdensome interest charges, the lender 
 falls on him and cleans him out of all he 
 possesses. If it be the promoter who helps 
 him, it generally ends the same way i.e., 
 in the promoter possessing himself of the 
 business. 
 
 Now it is this class of producer, one of 
 the most useful in the country, for whom 
 no financial provision has yet been made. 
 Our laws have placed him between the 
 devil and the deep sea ! The German 
 Government, quicker and more intelligent 
 in industrial and commercial matters than 
 the British Government (and although 
 autocratic, far more in touch with the 
 wants of the producing classes than ours), 
 has made provision for theirs, and Ger- 
 many has been reaping a rich harvest 
 almost entirely through such financial pro- 
 vision. 
 
 As I said previously, the main cause 
 of the inadequacy of our banking system 
 for commercial and industrial needs, is 
 our stupid Bank Charter Act, which should 
 be repealed. It has placed our banking 
 system in a strait- jacket, and it can only 
 
INADEQUACY OF OUR BANKS 137 
 
 expand in one direction namely, by in- 
 creasing the volume of bank credit, without 
 necessarily increasing the base upon which 
 it rests. 
 
TOWARDS A BETTER BANKING 
 SYSTEM 
 
CHAPTER IX 
 (March 30th, 1916) 
 
 TOWARDS A BETTER BANKING SYSTEM 
 
 IN the course of these articles on Finance, 
 I have endeavoured to point out the evils 
 of our present banking system and their 
 causes. These evils may be briefly sum- 
 marized as follows : 
 
 (1) There is an insufficiency and an 
 uncertainty of credit facilities, both as to 
 time and amount, for the proper and con- 
 tinuous development of our industries. 
 
 (2) Owing to its unnecessary exposure 
 to foreign influences, our credit market 
 is extremely sensitive and unreliable, which 
 results in our being afflicted with the most 
 variable bank rate in the world. 
 
 (3) Our bank credit is in constant danger 
 of a collapse due to the export of gold 
 which has been made the legal basis of 
 credit. And the collapse of credit involves 
 the annihilation of trade. 
 
 141 
 
142 A BETTER BANKING SYSTEM 
 
 (4) British bank credit has become prac- 
 tically a monopoly of the London Joint 
 Stock banks due to their control of the 
 Clearing House. This monopoly gives bank 
 directors a power and influence over British 
 industries which they ought not to possess. 
 With the constant amalgamation of our 
 banks, this power is falling into the grasp of 
 fewer and fewer hands. 
 
 (5) The rate charged for loans is un- 
 necessarily high. 
 
 ANTIQUATED BANKING LAWS 
 
 I have shown that these evils are the 
 natural result of our antiquated currency 
 and banking laws which have imposed 
 unreasonable restrictions, compelling the 
 banks to base all their transactions on gold. 
 Where the bankers have been to blame is, 
 first, in resisting every proposal for altering 
 and improving the present system, and 
 secondly, in supporting foreign loans, often 
 in disregard of the needs of British traders, 
 whose interests have been frequently sacri- 
 ficed on behalf of the foreign trade com- 
 petitor. No doubt they have had good 
 
A BETTER BANKING SYSTEM 143 
 
 reasons for pursuing such a policy. Con- 
 sequently when the foreigner offers 7 per 
 cent, or 8 per cent, for money where the 
 British trader can only offer 4 per cent, or 
 5 per cent., they are apt to close with the 
 foreigner. But think of the stupidity and 
 shortsightedness of British statesmanship that 
 enacts laws making the nation's trade and 
 industries subject to the cupidity or caprice 
 of the professional credit dealers ! And 
 when at the end of each year the directors 
 of our banks are able to pay their fortunate 
 shareholders from 12 per cent, to 22 per 
 cent, dividends, they are compelled to 
 agree with Pippa that " God's in his 
 heaven, and all's right with the world." 
 Now although we have still several ob- 
 structions to remove before the ground is 
 cleared for a better system one remaining 
 obstruction being the <c gold standard" l 
 which is the most difficult of all it is 
 possible to give the reader a sketch of one 
 or more of several better financial systems 
 than our present one. Any proposed sub- 
 
 1 1 am dealing with this subject in a separate volume 
 entitled A Fraudulent Standard. AUTHOB. 
 
 T.F. L 
 
144 A BETTER BANKING SYSTEM 
 
 stitutes for the present system must be 
 free from the evils enumerated. 
 
 An industrial banking system built on 
 sound principles should (1) afford ample 
 credit facilities for every member of the 
 commercial and industrial classes for carry- 
 ing on to the extent of his capital ; (2) 
 grant loans for a sufficient time to enable 
 each one properly to develop his business 
 under normal conditions and repay the 
 loan out of his annual revenue ; (3) furnish 
 loans on all forms of productive capital 
 without discrimination, but within a pre- 
 determined margin of safety ; (4) fix the 
 charge for the loan on the basis of cost of 
 service plus insurance against bad debts. 
 
 Just here let me point out that in spite 
 of all our improvements in machinery, by 
 which the supplies of commodities of every 
 description have been enormously increased 
 and cheapened, in spite of the vast increase 
 in the production of the precious metals 
 as well as the marvellous economies in their 
 use for legal tender purposes through the 
 general introduction of the inexpensive 
 cheque system, the price of the loan the 
 
A BETTER BANKING SYSTEM 145 
 
 rate of interest has not been permanently 
 reduced a fraction of 1 per cent, since the 
 enactment of the Bank Charter Act. 
 
 Now we have already seen from Sir 
 Edward Holden's illustration (see pages 113 
 and 114) why it is impossible under our 
 present laws for the banks to furnish loans 
 to all applicants owning capital. Bank 
 loans are limited by the amount of the 
 gold reserves not by the amount of securi- 
 ties offered. And the constant variations 
 in the volume of these reserves due to the 
 imports and exports of gold, create similar 
 variations in the amount of legal tender 
 with which credit is made redeemable. 
 
 NEEDS OF TRADE 
 
 The establishment of a banking system 
 capable of supplying the needs of trade fully 
 and satisfactorily, as outlined, is therefore 
 impossible under our present laws. If our 
 trade could be cut down to a fraction of 
 what it now is, so that the amount of 
 credit required was commensurable with 
 the gold and cash reserves held by the 
 banks, we should then have a condition 
 
146 A BETTER BANKING SYSTEM 
 
 which no doubt would have been regarded 
 as ideal by Sir Robert Peel where every 
 pound of bank credit and every legal-tender 
 note was redeemable in gold on demand. 
 Whilst this would provide no doubt for the 
 quality of the credit, it makes no provision 
 for the necessary quantity. In this respect 
 money and credit are like food, clothing and 
 necessities. It is sometimes necessary to 
 sacrifice quality for quantity. A thing 
 may be too good, too expensive for practical 
 needs. We cannot all afford the luxury of 
 brioche, nor can we supply silks and seal- 
 skins for our entire population, and yet we 
 must all eat and wear clothing. 
 
 On what basis then should bank credit 
 be issued ? If gold is so expensive, so 
 unreliable and so inadequate, with what 
 must it be replaced ? The answer is with 
 that which has already replaced it in a 
 large measure since the war started, and 
 which invariably takes its place in all 
 serious national crises, viz., the national 
 credit. To-day we are using one pound and 
 ten shilling currency notes, which are legal 
 tender for any amount. These notes are 
 
A BETTER BANKING SYSTEM 147 
 
 not based on gold, but on the national 
 credit. Since they were first issued they 
 have performed all the functions of money 
 with the same facility as the golden sove- 
 reigns and ten shilling pieces which disap- 
 peared soon after the war began. They are 
 safer and more reliable than gold coins 
 since they are not likely to be exported. 
 In every great national crisis universally the 
 Governments of the world have always fallen 
 back on their national credit expressed in the 
 form of paper money. Neither gold nor 
 silver bullets have ever proved so effective 
 as paper bullets. Surely if a financial 
 system is sufficiently strong to weather a 
 great crisis such as the United States went 
 through in her Civil War, it is good enough 
 in times of peace. 
 
 THE NATIONAL CREDIT. 
 
 Now the national credit is based upon 
 all the wealth and all the productive capa- 
 city of the inhabitants of these islands. 
 It includes the credit of all the banks. It 
 is not based upon one comparatively in- 
 significant metal gold but upon every 
 
148 A BETTER BANKING SYSTEM 
 
 commodity including gold, upon all that is 
 comprised within the British Isles and its 
 wealth beyond the seas. Moreover this 
 credit is not the property of any one class 
 or section of the community. It exists 
 because of the enterprise and labour of all 
 British citizens, past and present. It is as 
 solid as anything earthly can possibly be 
 made. Why then should our statesmen 
 hesitate to employ it as the basis for legal 
 tender and bank credit for the benefit of 
 the entire nation, instead of lending it as 
 a source of profit to a small and privileged 
 class ? Above all, why does the Govern- 
 ment dishonour the national credit by 
 pawning it for bank credit, which is inferior 
 in quality ? But more of this later. The 
 fact is that the financial question opens up 
 so many others, such as taxation, foreign 
 trade, commercial union with the Domi- 
 nions, etc., as often to tempt one to pursue 
 this immense subject in all of its different 
 phases. 
 
 I suggest therefore that the basis for 
 bank credit should be the national credit. 
 Legal-tender notes should be issued under 
 
A BETTER BANKING SYSTEM 149 
 
 proper regulations to the limit of meeting 
 the demands of trade. I may add, in 
 passing, that the root of all our currency 
 and banking troubles exists in the popular 
 superstition surrounding the so-called gold 
 standard the pons asinorum of Finance 
 which covers one of the greatest economic 
 fallacies ever taught. 
 
 Neither currency nor credit require any 
 metallic base. Values are ideal creations 
 not concrete magnitudes and can be ex- 
 pressed only in terms of the ideal. Now the 
 required financial conditions may be ob- 
 tained in several ways. They may be 
 attained (1) by a system of Mutual Banking, 
 (2) by Free Competitive Banking, or (3) 
 by a system of National Banking. Our 
 present system is neither National, Com- 
 petitive nor Mutual. Like many other of 
 our mediaeval institutions the legal pro- 
 fession, for example banking is a highly 
 protected guild constituting a private legal- 
 ized monopoly. 
 
 AN ASTONISHING FEATURE 
 One of the most astonishing features of 
 
150 A BETTER BANKING SYSTEM 
 
 our commercial history is the failure of 
 our commercial and industrial classes to 
 seize and control the banking business as a 
 necessary branch of trade. The entire 
 business and stock-in-trade of the banks is 
 furnished by the trading classes, and in- 
 stead of forming a mutual banking system 
 under their own control and operated for 
 industrial needs, they have allowed a pro- 
 fessional class to secure control and run it 
 for their own profit, until to-day the tail 
 wags the dog, and instead of our industries 
 controlling credit, credit dealers dominate 
 our industries. 
 
 Mutual banking is a system whereby 
 banking facilities are furnished to all the 
 members of the bank at a rate sufficient 
 to cover expenses and insurance. Any one 
 can become a member who owns capital 
 and bears a good reputation. Credit ac- 
 counts are opened and advances made 
 after careful investigation of the value of 
 the securities and the character of the 
 applicant. The bank officers are elected 
 by the members annually, and the bank is 
 controlled by a committee similarly elected. 
 
A BETTER BANKING SYSTEM 151 
 
 The object of mutual banking is to furnish 
 cheap banking facilities, not to make pro- 
 fits. Its success naturally depends upon 
 the number and importance of its members. 
 In regard to legal currency. This might 
 be obtained at present by the purchase of 
 Government bonds, which the Government 
 would exchange for their face value in 
 legal-tender notes. Now supposing all 
 classes could be induced to patronize such a 
 bank. It is evident that very little legal 
 tender would be required. Long ago it 
 was pointed out by John Stuart Mill that 
 if every business man could be induced to 
 open his account with one central London 
 bank, all business beginning and ending 
 in London could be transacted without the 
 use of cash, except that required for wages, 
 small payments and purchases. All pay- 
 ments could be made by cheque, and the 
 settlement of accounts would consist merely 
 of the transfer of credit from one person's 
 account to that of another. If all the 
 banks of Great Britain were amalgamated, 
 it would effect the greatest economy in the 
 use of money (that is, legal tender) ever 
 
152 A BETTER BANKING SYSTEM 
 
 achieved. It is knowledge of this fact 
 that is forcing the union of so many bank- 
 ing firms, because it reduces costs, econo- 
 mizes cash, reduces the amount of gold 
 reserves necessary, and increases bank pro- 
 fits. 
 
 If all the business firms and members 
 of the trading classes in this country agreed 
 to organize a central Mutual Bank, with 
 branches in every town, on the lines sug- 
 gested, they would not only be able to 
 provide a safe and satisfactory financial 
 system for supporting the trade and enter- 
 prises of Great Britain, but they would 
 effect a saving of tens of millions of pounds 
 annually ! It has been estimated that under 
 such a system, credit could be supplied at 
 the rate of 1 per cent, per annum, after allow- 
 ing for all charges, expenses, and insurance 
 against losses. 
 
 Free competitive banking has never 
 existed in this country. Most people be- 
 lieve that the various Joint Stock banks 
 are fierce competitors with each other. 
 And within certain limits this is true. But 
 the door is closed against the addition of 
 
A BETTER BANKING SYSTEM 153 
 
 any new banking company by means of 
 their control of the Clearing House. 
 
 THE CLEARING HOUSE 
 
 The Clearing House is most vital to the 
 banking business. It is where the daily 
 balances due by one bank to another are 
 ascertained and settled. Refusal by the 
 Clearing House authorities to clear the 
 cheques of any banking company would 
 put it out of business. If, however, the 
 Clearing Houses were nationalized and 
 free banking permitted with the right of 
 every bank to use the Clearing Houses, 
 such a system of competition would un- 
 doubtedly tend to the evolution of a better 
 and cheaper service than has ever yet been 
 discovered. 
 
 Naturally the Government would have 
 to enact rules and restrictions under which 
 banks could be formed and operated. In 
 this case, also, the national credit could 
 form the basis of bank credit by the pur- 
 chase of Government bonds convertible on 
 demand in legal-tender notes. Here, let 
 me say that at present I am dealing exclu- 
 
154 A BETTER BANKING SYSTEM 
 
 sively with a banking system suitable for 
 our home trade and industries. I am 
 aware that a somewhat different arrange- 
 ment is necessary for carrying on our 
 foreign trade. At present the popular 
 opinion seems to be in favour of the creation 
 of a National Banking System, which could 
 be effected by the purchase by the nation 
 of the Bank of England, together with the 
 Joint Stock Banking Companies of London, 
 including those in the provinces, Scotland, 
 Ireland, and Wales. Such a scheme is 
 quite feasible, and would prove a* paying 
 investment for the nation. It would in- 
 volve a sum quite moderate in comparison 
 with the amounts we have recently become 
 accustomed to in connexion with the war. 
 Naturally the credit of the nation could 
 be better organized and supplied to the 
 people through a properly established State 
 department than by any other means, 
 provided, of course, that such a department 
 was officered by the right men, In this, 
 as in all other Governmental departments, 
 the success of an institution depends on the 
 ability and honesty of those who administer 
 it. 
 
TREASURY NOTES 
 
CHAPTER X 
 (August 3rd, 1916) 
 
 TREASURY NOTES : THEIR PRESENT ADVAN- 
 TAGE AND PERMANENT VALUE 
 
 THAT saving quality of the British race 
 known as adaptability which has become 
 our proverbial characteristic may be re- 
 garded both as a national blessing and a 
 national curse. Its influence has made us 
 the hope as well as the despair of our Allies. 
 Whilst it has made us the greatest coloniz- 
 ing people in history, it has also made us the 
 most unprepared and ill-equipped nation 
 for meeting emergencies. Conscious of the 
 fact that we are capable of quickly im- 
 provising plans and methods enabling us 
 to meet new conditions, we instinctively 
 postpone even the discussion of dangers 
 until the dreaded events are actually hap- 
 pening. 
 
 This habit of procrastination has made 
 
 157 
 
158 TREASURY NOTES 
 
 us a byword among the nations for sloth 
 and improvidence. And one can almost 
 sympathize with the Germans in their cry 
 of " hypocrisy " on their finding this ap- 
 parently unmilitary, decadent, pacific, in- 
 dolent race suddenly converting itself into 
 a military power of the highest order, far 
 more capable of heroic deeds and posessing 
 greater martial ardour than themselves ! 
 Had the Germans understood the psycho- 
 logy of the British people as they under- 
 stand themselves, they could not have 
 fallen into such a fatal error as to suppose 
 us incapable of what we are now achieving. 
 A future writer might be justified in char- 
 acterizing us as a race of " Houdinis." As 
 all the world probably knows, Houdini is 
 the man who allows himself to be bound 
 with ropes and tied in a sack or nailed in a 
 box and thrown into the sea, and within the 
 space of a few minutes he is seen calmly 
 swimming to shore as though nothing un- 
 usual had happened. The British nation 
 apparently loves to show its skill in sur- 
 mounting obstacles and getting safely out 
 of tight corners. 
 
TREASURY NOTES 159 
 
 By all the rules of warfare and common 
 sense our Expeditionary Force should have 
 been annihilated in the first two or three 
 days of the war. To-day two years 
 after the beginning of hostilities we are 
 attacking the enemy in superior numbers 
 and with superior weapons. Two years 
 ago our army was numerically inferior to 
 that of Serbia or Greece, whilst our muni- 
 tion works compared to those of Germany 
 were absolutely insignificant. At the end 
 of those two years we find ourselves as well 
 equipped as Germany was after forty years' 
 preparation ! 
 
 OUR CURRENCY SYSTEM 
 
 Take again our currency and banking 
 systems. ^Vhen war broke out we found 
 ourselves bound hand and foot by a ridi- 
 culous restrictive parliamentary Act which 
 forbade the Bank of England to issue legal- 
 tender notes without an equivalent of gold 
 reserves. The gold had vanished much 
 of it to Germany through the lack of fore- 
 sight on the part of our Government, and 
 the operation of the Bank Charter Act. 
 
 T,F. " M 
 
160 TREASURY NOTES 
 
 And it was impossible to secure supplies 
 from abroad in time to save the country 
 from an impending catastrophe. The 
 credit system built up under this suici- 
 dal measure collapsed as every intelligent 
 writer predicted it would as soon as a 
 great crisis was in sight. The nation was 
 brought face to face with a panic of un- 
 precedented magnitude. In any other 
 country panic must have ensued. 
 
 A meeting of the bankers was called at 
 the Bank of England and a three days' 
 holiday proclaimed during which a safe 
 and simple remedy was devised by one of 
 our greatest bankers, and within twenty- 
 four hours the whole situation was changed. 
 What threatened to be a terrible financial 
 storm became a dead calm. Treasury notes 
 were issued in denominations of one pound 
 and ten shillings to the extent of the coun- 
 try's needs. Sovereigns and ten shilling 
 pieces were gradually called in, and the 
 people hitherto accustomed only to gold 
 and silver coin nay, even taught by 
 foolish financial writers to regard paper 
 money as dangerous and unreliable imme- 
 
TREASURY NOTES 161 
 
 diately adapted itself to the new circum- 
 stances. 
 
 The credit of the British nation un- 
 surpassed in the commercial history 
 of nations has taken the place of gold 
 since August, 1914, and circulates without 
 let or hindrance from one end of the coun- 
 try to the other. Confidence was imme- 
 diately restored, and as far as financial 
 accommodation is concerned, no one would 
 imagine we were in the midst of the greatest 
 war in history. So much for our adapta- 
 bility ! 
 
 TIME TO LEARN A LESSON 
 
 But it is surely time to learn a lesson. 
 Adaptability is a good quality, but like a 
 good memory it may some day fail us, and 
 then will come the deluge. Having suc- 
 cessfully avoided the financial storm to 
 which wars give rise, it is time to consider 
 what is to happen after peace is declared. 
 The issue of Treasury notes was distinctly 
 a war measure. There are at present 
 something like 120,000,000 of these notes 
 in circulation, and the Treasury holds 
 
162 TREASURY NOTES 
 
 28,000,000 in gold as a sort of basis for 
 them. Already there are indications that 
 efforts will be made in certain circles to get 
 rid of them when the war is over. 
 
 The public will be told that having 
 served their purpose during the war, as 
 soon as the crisis is over they will be no 
 longer needed. This movement which, if 
 successful, would deprive our industrial and 
 trading classes of this most efficient and 
 absolutely safe medium of exchange, and 
 would make money much dearer, should be 
 resisted by every one who wishes to save the 
 country from the horrors of trade depression 
 and unemployment. Under the plausible 
 excuse of desiring to reduce prices, certain 
 money-trading concerns are already point- 
 ing to the Treasury notes as the main cause 
 of the high prices prevailing. Their real 
 motive is to reduce the supply of legal 
 tender in order to raise the purchasing 
 power of gold. It should be remembered 
 that a general fall in prices means a relative 
 shortage of money, and a consequent falling 
 off in the effective demand for commodi- 
 ties. And this means a slackening of 
 
TREASURY NOTES 163 
 
 production, reduction of wages, unemploy- 
 ment, sometimes ending in industrial stag- 
 nation. 
 
 There are infinitely greater evils than high 
 prices. In fact a high level of prices is the 
 usual accompaniment of industrial pros- 
 perity except in cases where the supplies 
 of commodities are either cut off as the 
 result of war (as is the case in Germany and 
 Austria) or the consequence of famine, 
 from natural causes. But where as in 
 America trade and industries are flourish- 
 ing as they have never flourished before, 
 prices are abnormally high. Money is the 
 mechanism of exchange. To reduce sud- 
 denly its volume below that necessary for 
 carrying on business is to create every kind 
 of economic disaster ', bankruptcy, starvation, 
 and ruin ! It will be found that every 
 attempt in the past to do what some of our 
 financiers are already suggesting we should 
 do after the war, has been attended in- 
 variably by commercial, industrial and 
 social distress in the acutest form. What 
 our Cobdenites have christened the " hun- 
 gry 'forties," was a period of severe mone- 
 
164 TREASURY NOTES 
 
 tary restriction, and the social miseries 
 endured by millions of our people were 
 due as much to the unfortunate financial 
 policy inaugurated by our legislators (whose 
 knowledge of monetary science was abso- 
 lutely mediaeval) as to the Corn Laws. 
 
 Again, when, through the instigation of 
 certain international financiers, the United 
 States Government was induced to destroy 
 millions of greenbacks which had carried 
 them safely through their Civil War, 
 America paid the inevitable penalty of an 
 industrial crisis with all its accompanying 
 social horrors. 
 
 With the return of our armies, the 
 problem of productive employment will 
 become a very serious one, and all our 
 financial resources and facilities will be 
 taxed to the utmost. Are we to throw 
 away the most important national credit 
 instrument we possess at the bidding of 
 certain money-traders whose object is to 
 enhance the value of their own commo- 
 dities gold and credit ? It is surely of 
 infinitely greater importance to ensure 
 employment and consequent food, shelter, 
 
TREASURY NOTES 165 
 
 and comfort to all even at high prices 
 than to risk industrial stagnation ! Let 
 me say at once, that our most progressive 
 bankers are opposed to this wanton de- 
 struction. The movement is confined to a 
 very small, although a very influential 
 clique. But the leaders of our great Joint 
 Stock banks, the majority of those who 
 are conversant with the commercial needs 
 of the nation, desire to preserve these notes. 
 What they wish to see, however, is an 
 absolutely solid gold backing to the 
 entire Treasury issue. They realize that 
 100,000,000 or 120,000,000 of ten shil- 
 lings and one pound notes are essential 
 for the country's needs, but they are anxious 
 that the Government should create a Trea- 
 sury reserve equal in amount to the face 
 value of the notes issued. 
 
 Now, experience has demonstrated be- 
 yond any question, that for the purpose of 
 our Home trade, Treasury notes, whether 
 backed by gold or not, are readily accepted, 
 and they facilitate trade quite as well as 
 sovereigns and half sovereigns, and with 
 far less cost to the nation. But our com- 
 
166 TREASURY NOTES 
 
 mercial dealings with foreign countries are 
 necessarily based upon gold the inter- 
 national commodity for settling trade 
 balances. And at present we are entirely 
 dependent for our gold supplies upon a 
 private trading company, viz., the Bank of 
 England, whose interests are not always 
 in harmony with those of the trading 
 community. The Great War has shown 
 the importance of maintaining a war 
 chest. 
 
 By securing a Treasury gold reserve of 
 100,000,000 or more, as a basis for the 
 notes, the Government would be able to 
 satisfy all parties, except the contractionists 
 whose interests are opposed to those of the 
 nation. Those who are superstitious enough 
 to believe gold of more value than 
 the national credit based upon the pro- 
 ductive energies and capacities of the 
 British nation, would have their present 
 fears allayed. Those who recognize the 
 enormous help to trade which these notes 
 have been, will admit that they lose nothing 
 by the addition of so much gold. But 
 above all, the use of the national credit as 
 
TREASURY NOTES 167 
 
 legal tender takes the nation's industries 
 to a large extent out of control of the mani- 
 pulators of specie , whose policy has been a 
 brake upon the wheels of industry for the 
 past century. In establishing such a national 
 gold reserve, safeguards should be pro- 
 vided to prevent cosmopolitan financiers 
 from manipulating these reserves for their 
 own interests. 
 
 The truth is that for our home trade, gold 
 is entirely unnecessary. It is only abroad, 
 where our legal tender laws have no effect, 
 that Treasury notes would fail to circulate, 
 and hence gold becomes a necessity. But 
 it is precisely the fact that our legal tender 
 notes would not circulate abroad, that 
 makes them far preferable for our national 
 currency than gold. Our manufacturing 
 and commercial interests demand a currency 
 that can be relied upon, which will stay at 
 home and not travel abroad and can be ob- 
 tained when it is needed. They demand a 
 uniform bank rate and not one that is con- 
 stantly oscillating like a pump handle. Un- 
 der the Bank Charter Act our bank rate 
 has been the most variable of any in the 
 
168 TREASURY NOTES 
 
 world. And this variability is the price 
 we have had to pay for using as legal tender 
 a metal that our laws have deliberately 
 made so enticing to foreigners as to impel 
 them to ship it abroad and restrict our 
 banking facilities. 
 
 Our Treasury notes tend to reduce these 
 evils considerably. Moreover they tend 
 to broaden the basis upon which our bank 
 credit is issued, and permit our bankers 
 to increase their facilities with far less 
 risk than heretofore. There is therefore 
 every reason in favour of continuing these 
 notes after the war, and not a single valid 
 excuse for destroying them. 
 
 Since the above article was published the 
 Great War Loan the greatest in history 
 has been successfully floated. I am deal- 
 ing with this subject in a special work 
 entitled A Fraudulent Standard. I venture 
 to say that the financial methods under 
 which this loan has been subscribed, with 
 the humiliating Press advertisements and 
 appeals to citizens to invest because " Ger- 
 many is watching," the stupendous and 
 
TREASURY NOTES 169 
 
 unnecessary burdens created, which must 
 be shouldered by this and future genera- 
 tions in the shape of interest charges to 
 say nothing of the millions of pounds 
 squandered in advertising and collecting 
 subscriptions I say that the future vic- 
 tims of this " frenzied finance " will regard 
 this war loan as the greatest monument 
 to British financial lunacy that has ever 
 been raised ! To explain this remarkable 
 operation in a few words, what has hap- 
 pened is this : The Government have con- 
 tracted to pay first a bonus of 5 per cent, 
 and second an annuity of 5 per cent, to 
 every subscriber for contributing towards 
 a sum of credit which the Government al- 
 ready controlled, and which could have 
 been made effective by the mere stroke of a 
 pen, if the Government had been properly 
 advised. Subscribers have merely contri- 
 buted their cheque pounds, which is nothing 
 more than bank credit. But the Govern- 
 ment controls the whole of the national 
 credit, which embraces all our private and 
 bank credit. Hence we are treated to the 
 spectacle of a Government exchanging the 
 
170 TREASURY NOTES 
 
 superior credit of the nation for the inferior 
 credit of the individual and selling it actu- 
 ally at a discount ! Could imbecility go 
 farther ? Moreover, the Government could 
 have employed the national credit without 
 involving the taxpayers in a shilling of 
 interest or advertising charges. At the 
 end of twenty years the nation will have 
 paid the entire amount of the war loans in 
 interest charges alone, without reducing 
 the original debt by one penny ! But this 
 is not the worst. The loan has been sub- 
 scribed in cheap credit pounds, and neither 
 in gold pounds nor even in Treasury note 
 pounds ! In what kind of pounds will our 
 future Governments redeem this enormous 
 debt ? In what kind of pounds will they 
 pay the interest ? By destroying the Trea- 
 sury notes after the war, the money and 
 credit dealing classes can double the 
 National Debt through the rise in the value 
 of the " pound " which would follow ! This 
 trick has been played after most of the great 
 wars of the past. It was played on the 
 American public after their Civil War, with 
 the result that the American producing 
 
TREASURY NOTES 171 
 
 classes were compelled to pay the cost of 
 that war five or six times over through the 
 appreciation of the dollar due to legislation 
 instigated by their bankers and cosmo- 
 politan financiers. 
 
 Our Treasury notes will be needed to 
 play an important and necessary part in 
 developing our industries after the war. 
 They will take the place of gold provided 
 they are not withdrawn by some ignorant 
 or corrupt Chancellor. We shall need them 
 more and more as our trade grows and 
 particularly in our economic struggle with 
 our trade rivals ! 
 
 Taxpayers are compelled to pay their 
 taxes in legal pounds. They must neces- 
 sarily buy them with their labour and 
 commodities. If the " pound " appreciates 
 in value, they must give more of their 
 labour and more of their produce to obtain 
 them. It is therefore of supreme import- 
 ance to every taxpayer whether the pound 
 remains cheap as it is to-day -or becomes 
 dear, as our financiers wish it to be. By 
 doubling the value of the pound, the 
 wealthy double their wealth at the expense 
 
172 TREASURY NOTES 
 
 of the debtor class, whose debts double 
 also. I would strongly urge every citizen 
 to keep his eye on every and any fiscal 
 measure introduced into Parliament from 
 now on. Watch Parliament ! Watch 
 members who represent financial and 
 banking interests, to prevent them attempt- 
 ing to destroy the people's money ! The 
 first man who attempts to cheat the 
 nation, by raising the value of money should 
 be publicly hanged as a traitor ! It is the 
 crime of crimes, because of the widespread 
 misery and suffering it engenders ! 
 
GERMAN TRADE METHODS 
 
CHAPTER XI 
 (May 4th, 1916) 
 
 GERMAN TRADE METHODS 
 
 THE question has often been asked, " By 
 what means has Germany been able to 
 secure in so short a space of time so large a 
 proportion of the world's trade ? " Most 
 writers who have dealt with this subject 
 attribute her success to one or more of the 
 following factors : First, to the intelligence 
 and industry of the German people them- 
 selves; secondly, to their superior system 
 of education, and particularly to their 
 technical methods of training; thirdly, to 
 their system of trade protection; and 
 fourthly, to the encouragement and assist- 
 ance they have always received from their 
 rulers. 
 
 The Germans have often explained their 
 tolerance of so autocratic a Government as 
 theirs by claiming that the Kaiser is the 
 
 T.F. 175 N 
 
176 GERMAN TRADE METHODS 
 
 best trade organizer and sales-agent in 
 the whole German Empire. 
 
 There is a fifth reason which is often 
 alleged, namely their financial system, under 
 which their bankers have always been 
 ready to associate themselves with German 
 industries, and to furnish capital to any 
 extent for the development of such enter- 
 prises as promised success. No doubt, 
 all these reasons are valid, and German 
 trade is an example of what a nation can 
 accomplish when it is thoroughly united 
 and organized for industrial purposes. 
 There are, however, other factors of quite 
 a different character. The Germans have 
 been taught from infancy up, that the prin- 
 cipal aim in life is to achieve success in 
 whatever occupation they may be em- 
 ployed. They have also been taught that 
 " the end justifies the means." No Jesuit 
 ever believed more strongly in this doctrine 
 than the present inhabitants of Germany. 
 Every conceivable method of obtaining 
 and developing trade, whether moral or im- 
 moral whether praiseworthy or contemp- 
 tible is considered legitimate. Methods 
 
GERMAN TRADE METHODS 177 
 
 which other nations would regard as 
 treacherous and infamous are permissible 
 among the modern Huns. Many of these 
 methods have already been brought to 
 light since the war started. Many others 
 are known only to those who have had 
 extensive dealings with German houses 
 and have not hitherto been published. 
 
 TRADE SPIES 
 
 We now know that the shoals of young 
 Germans who prior to the war came to 
 this country, to our Colonies, to France, to 
 Italy, to Russia and other countries were 
 trade spies employed under the direction 
 of the German Government to secure all 
 the information they could regarding foreign 
 trade, which information they placed from 
 time to time at the disposal of the German 
 authorities. 
 
 Every town was encouraged to send so 
 many of its most intelligent youths to 
 foreign countries to seek employment in 
 any and every kind of industry and busi- 
 ness which they desired to follow. Being 
 supported by their townspeople, they were 
 
178 GERMAN TRADE METHODS 
 
 in a position to offer their services gratui- 
 tously, their professed motives being merely 
 to learn the language of the country. 
 They were instructed to send weekly re- 
 ports to the German authorities, giving a 
 full description and information of the 
 kind of business in which they were 
 employed, with every detail as to out- 
 put, methods and costs of manufacture, 
 methods of payment, prices, discounts, with 
 the names of the customers of each firm 
 with whom they were employed. Any 
 private business letters that they could 
 secure they were expected to copy, parti- 
 cularly letters from foreign clients, with the 
 nature of the inquiries, special terms 
 asked or offered, and amount of orders, etc. 
 In some cases, these youths were instructed 
 to secure samples of the goods made by 
 their employers and to send them to Ger- 
 many. In this way, the whole business 
 arrangements and methods of foreign firms 
 became known to the German manu- 
 facturers, with the result that they merely 
 had to produce articles of a similar nature, 
 or if possible with some improvement, and 
 
GEKMAN TRADE METHODS 179 
 
 offer them at slightly better terms to the 
 clients of these foreign firms in order to 
 secure such foreign trade. German firms 
 were given to understand by their Govern- 
 ment that any financial assistance they 
 might require for the purpose of ousting 
 their foreign competitors in the markets of 
 the world would be granted them. They 
 were instructed to undersell foreigners 
 wherever it was necessary. They were told 
 to give longer credit and to do everything 
 in their power to convince the foreign 
 purchasers and consumers that German 
 methods and German goods were superior 
 in every way to those of all other nations. 
 
 SECRET SUBSIDIES 
 
 It has been stated that at least one school 
 of languages was subsidized by the German 
 Government in order that its employees 
 should send to Germany copies of corre- 
 spondence given them by foreign firms for 
 translation. It has been a custom with 
 many British and foreign houses to send 
 their foreign letters to such schools for the 
 purpose of translation. Consequently, it 
 
180 GERMAN TRADE METHODS 
 
 was a very simple matter for the trans- 
 lators if they were unscrupulous enough 
 to make and send copies to Germany. 
 Such correspondence, naturally, was often 
 of a very private character, containing 
 details of the foreign markets and of the 
 needs of various foreign purchasers, all of 
 which would be of enormous value to the 
 Germans. 
 
 Another method that the Germans have 
 practised was to send their representa- 
 tives abroad to secure agencies for British, 
 French, Austrian, Italian, American and 
 other goods. These representatives would, 
 for example, locate themselves in London 
 or Manchester, and having secured the 
 agencies for various British manufacturers 
 for British specialities, they would en- 
 deavour to work up a trade in these articles 
 within Great Britain itself. Having estab- 
 lished themselves and become known to 
 the particular trade in which they were 
 engaged, having opened up a business 
 with the British public, they would send 
 the samples of these British-made goods 
 to Germany and have them manufactured 
 
GERMAN TRADE METHODS 181 
 
 there, import them, and continue to supply 
 their British customers with these imita- 
 tions of British goods, until finally the 
 British manufacturers would find their 
 trade practically destroyed in their own 
 country by their own agents. That these 
 methods not only received the sanction of 
 the German Government, and the so-called 
 " higher classes " in Germany, is quite 
 credible to those familiar with the kind of 
 justice and honour prevailing and adminis- 
 tered in the Fatherland. 
 
 Some years ago, I was represented in 
 South Germany by an agent who had been 
 introduced to me as an extremely able 
 and reliable man. After some months' 
 experience with him, I discovered he had 
 been obtaining money under false pretences 
 and had apparently forged my signature 
 to documents which he had drawn up, 
 giving himself the right to negotiate certain 
 patents which I owned. On the strength 
 of these documents, he had secured the 
 payment of a large sum of money. The 
 matter was brought to the attention of the 
 Public Prosecutor of the city in which this 
 
182 GERMAN TRADE METHODS 
 
 man resided, and my solicitor petitioned 
 for the man's arrest. The Public Prose- 
 cutor inquired the name of the prosecutor, 
 and when he discovered that I was an 
 Englishman, he refused to issue the war- 
 rant. When my solicitor expressed sur- 
 prise, the Prosecutor suggested that I 
 should assign my claim to a German 
 subject. 
 
 " I am not going to arrest a German at 
 the instigation of a foreigner," said he. 
 
 GERMAN JUSTICE 
 
 I had an acquaintance residing in that 
 city a German Baron a very well-known 
 public man, and I informed him of the 
 decision of the Public Prosecutor, where- 
 upon he offered to take the claim. He 
 informed me that he also had been victi- 
 mized by this same agent, and that he had 
 hesitated to prosecute him as he had known 
 his father. However, he forwarded my 
 claim, together with his own, and on his 
 complaint the agent was arrested and kept 
 in prison without trial for a week. At the 
 end of the week, the Baron was summoned 
 
GERMAN TRADE METHODS 183 
 
 by telephone to appear at the Public Prose- 
 cutor's Office, where he was brought face 
 to face with the prisoner. The following 
 conversation ensued : 
 
 Public Prosecutor : "I have asked you to come 
 here, Baron, in order to get the case against this 
 unfortunate man settled. I understand that your 
 complaint is that you gave him money at his request 
 for the purchase of certain shares in a company, and 
 he has failed to either return you the money or hand 
 you the shares. If he gives you the shares are you 
 content ? " 
 
 The Baron : " Yes, I have no wish to punish the 
 man, and if he returns me the shares, I shall be satis- 
 fied." 
 
 Public Prosecutor to the prisoner : " If I let you 
 go, are you willing to give the Baron the shares you 
 owe him ? " 
 
 Prisoner: "Yes." 
 
 Public Prosecutor : "If you do not return the shares 
 within a week, I shall have you re-arrested, and then 
 you will be punished. You can go." 
 
 The Baron to Public Prosecutor : " But this case 
 is only one of two. What about the forgery case ? " 
 
 Public Prosecutor : " That case has nothing to do 
 with you, Baron. I understand that you have merely 
 taken it out of friendship for a foreigner, an English- 
 man, and I am not going to punish a German citizen 
 on the complaint of a foreigner. My advice to you 
 is to drop the whole thing and have nothing to do with 
 it." 
 
 This apparently ended the case so far as 
 the Baron was concerned, but my turn was 
 yet to come. Some three weeks later, I 
 
184 GERMAN TRADE METHODS 
 
 was on my way to Vienna, and I telegraphed 
 my solicitor to meet me en route. I had 
 come direct from Flushing on one of the 
 through trains that ran from Flushing to 
 Vienna. On my arrival in Germany my 
 solicitor boarded the train, and advised 
 me not to leave the train before crossing 
 the Austrian frontier, as a warrant had 
 been issued for my arrest. I inquired 
 what crime I had committed. His answer 
 was : " You have committed one of the 
 most serious crimes of which a foreigner 
 can possibly be guilty in Germany. You 
 are accused of having conspired with an- 
 other person to cause the arrest and im- 
 prisonment of a German citizen, and this 
 is punishable with a long term of imprison- 
 ment." I asked him for the details, and 
 he informed me that the agent who had 
 forged my signature, after he had made 
 his peace with the Baron by returning 
 him his shares and had secured his freedom, 
 applied to the Public Prosecutor for my 
 arrest on the ground that I had conspired 
 with the Baron to deprive him of his 
 liberty ! 
 
GERMAN TRADE METHODS 185 
 
 I stated to my solicitor that of course 
 this was nonsense, and that I had merely 
 acted on what he himself informed me was 
 the advice of the Public Prosecutor. He 
 answered : " This is true, but it does not 
 lessen the crime in the eyes of German laws. 
 The man who advised your assigning your 
 claim to a German citizen is the same who 
 has issued the warrant for your arrest for 
 having taken his advice." He added : 
 " Now you are beginning to get some idea 
 of c German justice.' ' He said, " I could 
 furnish you with dozens of illustrations of 
 a similar character, of how foreigners have 
 innocently fallen into traps of this sort 
 and have had to suffer the consequences." 
 For some three or four years afterwards I 
 had to exercise extreme caution in travel- 
 ling in Central Europe in order to escape 
 the warrant that had been issued against 
 me. 
 
 On another occasion when I attempted 
 to bring suits against certain German firms 
 for infringing my patents, I was advised 
 by the very highest patent counsel in Berlin 
 not to attempt to bring the suit in my own 
 
186 GERMAN TRADE METHODS 
 
 name. This eminent counsellor said: " I 
 am sorry to have to confess it, but we 
 have no laws in this country for the pro- 
 tection of foreigners. Our laws are made 
 for the benefit of Germans and Germans 
 only." He added : " I do not think any 
 of our patent judges would issue an in- 
 junction to stop Germans from manufac- 
 turing goods in this country, even though 
 they infringed your patents, considering 
 that you are a foreigner. Your only chance 
 of success would be by assigning your 
 patents to a German or a German firm, and 
 getting them to bring a suit in their own 
 name." 
 
 When the war broke out, there were 
 no less than thirty German companies 
 manufacturing goods which infringed the 
 patents granted to me by the German 
 Government ! 
 
NEW STEPS IN ECONOMIC REFORM 
 
CHAPTER XII 
 (June 22nd, 1916) 
 
 NEW STEPS IN ECONOMIC REFORM 
 
 ONE of the many changes already accom- 
 plished by the war is that effected in the 
 mental attitude of the British public re- 
 garding social and economic reforms. Two 
 years ago our conservatism and dislike for 
 innovations seemed to be ineradicable. 
 We were regarded by our Transatlantic 
 neighbours as almost impervious to new 
 ideas and to all radical reform measures. 
 We were considered as a people on the 
 down-grade, living on the memories of the 
 past, and in most of our methods and 
 habits nearly fifty years behind the times. 
 To-day our conservatism is conspicuous 
 by its absence. The British public mind 
 hitherto regarded as fossilized, has been 
 changed to a condition of remarkable plas- 
 ticity. The symptoms of old age and 
 
 189 
 
190 NEW STEPS IN ECONOMIC REFORM 
 
 decadence, which were apparent prior to the 
 war, are no longer visible, and instead of 
 this, we find a mental vigour and moral 
 outlook indicative of a nation in the young 
 and formative stage. 
 
 A PERIOD OP REFORM 
 
 We are living at a period when almost 
 any moral, social or economic reform could 
 be introduced and welcomed with avidity. 
 Witness the ease with which paper money 
 has displaced gold coins for currency pur- 
 poses, a system which Lord Goschen, with 
 all his skill and influence, failed to intro- 
 duce. Witness also the recent Daylight 
 Saving Act, which a few years ago was 
 regarded as altogether Utopian. In fact, 
 we have arrived at a stage of our national 
 history when almost any reform is possible. 
 And the imagination becomes confused 
 when one contemplates the innumerable 
 plans and policies suggested and necessary 
 in order to carry Britain to heights of pro- 
 gress hitherto considered unattainable. 
 
 Without rushing too far ahead, let us 
 consider one or two simple practical and 
 
NEW STEPS IN ECONOMIC REFORM 191 
 
 urgent reforms which could quickly and 
 readily be effected, for which the present 
 times are propitious. Nearly a century 
 and a quarter ago, the French Government 
 offered to the world the simplest system 
 of physical measurements for weights 
 and measures ever proposed. With 
 the exception of the great English- 
 speaking races, practically the entire com- 
 mercial and industrial world have adopted 
 the French Metric System. Only Great 
 Britain, her Colonies, and the United 
 States still cling to their archaic system. 
 It is perfectly true that we have recently 
 legalized the French system, but the time 
 is surely now ripe for making its use com- 
 pulsory. If this were done, to take effect 
 say, six months after the passing of the Act, 
 its introduction could be achieved without 
 any serious trouble or dislocation of 
 trade, and an economy in time and 
 labour would be achieved that would 
 be incalculable ! The saving which would 
 be effected in clerical labour alone would 
 furnish a small army of clerks for much 
 
 needed service in other fields. 
 T.F. o 
 
192 NEW STEPS IN ECONOMIC REFORM 
 
 There is another reason which should 
 induce us to urge the immediate adoption 
 of this system. We are hoping to form 
 some kind of Commercial Union with our 
 Dominions, and to enter into certain 
 friendly trade relations with our Allies after 
 the war. We are preparing to capture 
 German trade in many countries. To do 
 this we must understand the nature and 
 methods of trade in those countries, and by 
 adopting the same standards and methods 
 of measurement, we shall make the 
 task of our manufacturers and merchants 
 much easier. Many a foreign contract 
 has been lost by reason of the inability 
 or refusal of British manufacturers to 
 estimate in terms of metric measurements. 
 The Germans have no difficulty in this 
 respect, since they use the same system. 
 
 Accompanying this change, however, 
 there should be introduced a decimal 
 coinage and currency system. Although 
 the United States still join us in retaining 
 the old unscientific system of weights and 
 measures, they, as well as Canada, long 
 ago recognized the enormous advantages 
 
NEW STEPS IN ECONOMIC REFORM 193 
 
 of the decimal monetary system, and 
 adopted the dollar and cent as their mone- 
 tary units. In fact, Great Britain is the 
 only important nation that has not yet 
 adopted the decimal coinage. 
 
 An American writer recently asserted 
 that the adoption by the U.S.A. of the 
 English coinage system would require no- 
 thing less than a conscription of all the 
 American youths to undertake the clerical 
 labour which this extra work would entail ! 
 But it is not merely in the matter of book- 
 keeping where vast economy would be 
 effected by such a change. Let any one 
 interested stand at any of the booking 
 offices of a London railway station or 
 theatre during holiday times and witness 
 the time taken by the cashiers in receiving 
 coins and notes and counting and giving 
 change. Then let him do the same at any 
 of the New York, Boston or Chicago rail- 
 way offices and note the difference. I have 
 seen a hundred passengers pass through a 
 New York Elevated Railway turnstile, 
 each one buying his ticket, and the majority 
 receiving change, in less than six minutes ! 
 
194 NEW STEPS IN ECONOMIC REFORM 
 
 I have been one of a line of twenty at a 
 London booking office and it has taken the 
 clerk over ten minutes to perform the same 
 service. In other words, it has taken the 
 London official with our complicated archaic 
 coinage system ten times as long to attend 
 to a given number of passengers as the 
 American with his simple decimal coinage ! 
 Nor is this all. The chances of errors and 
 mistakes in giving change, are enormously 
 greater with the former. No head work, 
 no mental arithmetic is necessary with the 
 decimal system, whilst ours usually entails 
 some very nimble and careful calculations. 
 This discussion is, of course, the revival 
 of an old subject. But the conservatism 
 which has hitherto made such simple and 
 undeniably essential reform impossible, is 
 to-day almost non-existent. Moreover, 
 economy is in the air, and the public is 
 clamouring for it in every shape and form. 
 
 OUR COINAGE SYSTEM 
 
 Many suggestions have already been 
 made for changing our coinage system. 
 That which would necessitate the least 
 
NEW STEPS IN ECONOMIC REFORM 195 
 
 inconvenience is to make the ten shilling 
 piece the standard coin in place of the 
 sovereign. This would only occasion a 
 change in the division of the shilling. By 
 dividing the shilling into ten pennies, we 
 should arrive at the decimal system in 
 practically one step. For convenience we 
 might regard the penny as divided into ten 
 parts, although it would not be necessary 
 to furnish a coin of less denomination than 
 half-a-penny. The standard coin (10s.) 
 might be called the " George " in honour 
 of the King, just as the standard French 
 coin is the Louis, formerly the Napoleon. 
 We should then have : 
 
 10 farthings = 1 penny. 
 10 pence = 1 shilling. 
 
 10 shillings = 1 George. 
 The transformation of " Georges " into 
 pounds and vice versa would thus be sim- 
 plicity itself. No doubt the monetary 
 pound relic of a barbarous age would 
 gradually disappear from our vocabulary. 
 Ever since gold supplanted silver as the, 
 money metal, the term " pound" has lost 
 its original significance. 
 
196 NEW STEPS IN ECONOMIC REFORM 
 
 Scientific opinion in this country and in 
 our Dominions, as well as in the United 
 States, is almost unanimously in favour 
 of the general adoption of the decimal 
 system in all our methods of physical 
 measurements, and the present time is 
 undoubtedly the psychological moment for 
 beginning a new era in this particular field. 
 
LABOUR, CAPITAL, AND THE STATE 
 
CHAPTER XIII 
 (October 5th, 1916) 
 
 LABOUR, CAPITAL, AND THE STATE 
 
 THE present praiseworthy efforts of many 
 well-meaning people to secure industrial 
 harmony by bridging the gulf separating 
 labour and capital are worthy of every 
 encouragement. But a word of caution 
 from one who has had a life-long experience 
 in industrial affairs, both here and abroad, 
 may save from disappointment many of 
 those who fondly hope that all that is 
 needed is a certain amount of good will on 
 both sides in order to solve the difficulty. 
 Good will alone will not suffice. A complete 
 settlement of the labour problem can only 
 be achieved on thoroughly sound economic 
 lines, which will involve a complete reversal 
 of many old-established theories. Above 
 all, it will involve sacrifices particularly 
 from the capitalistic classes and until 
 
 199 
 
200 LABOUR, CAPITAL AND THE STATE 
 
 these are prepared to meet labour upon the 
 common grounds of humanity and honesty, 
 all the efforts of our statesmen, clergy, 
 philanthropists, and publicists, will end in 
 mere idle talk. 
 
 Let us first dispose of some old theories 
 which at present tend to obstruct the 
 path of those who wish to reconcile the two 
 conflicting parties. The production and 
 distribution of wealth follows certain de- 
 fined rules, which are due partly to custom, 
 to parliamentary laws and to ancient 
 statutes, and which have been classified 
 and embodied in the so-called Science of 
 Economics. But with changing social and 
 industrial conditions, those rules which 
 apparently held good for one age fail utterly 
 in another. Experience has shown us that 
 many of the so-called " principles " upon 
 which orthodox economics were originally 
 based, are utterly false. Some of our 
 modern economists have long perceived 
 that the orthodox science as enunciated by 
 the standard authorities from Adam Smith 
 to Stanley Jevons, is merely an incoherent 
 ensemble of theories as unreal and unreliable 
 
LABOUR, CAPITAL AND THE STATE 201 
 
 as the " science " of astrology. We know 
 now that the artificial creation designated 
 the " Economic-Man," is as mythical as 
 Frankenstein. Men are not governed by 
 greed alone, nor is the acquisition of material 
 wealth the sole end and aim of existence. 
 The trouble with the old economists was, 
 that having found certain institutions in 
 existence and apparently in good running 
 order, they concluded that these were of a 
 permanent character, and straightway set 
 out to justify them and regard them as 
 based upon certain fixed laws. They then 
 placed the whole science in a water-tight 
 compartment, so that it had no possible 
 connexion or relation with any other 
 science. Both Ethics and Psychology -were 
 deliberately ignored. Forgetting that man 
 and society are organic and subject to 
 growth and development, they sought to 
 solve dynamic problems by static laws. 
 Those who are anxious to secure indus- 
 trial harmony must first realize that the 
 old system which regarded labour as merely 
 the servant of capital, is dead in spite of 
 the efforts of certain schools to galvanize 
 
202 LABOUR, CAPITAL AND THE STATE 
 
 it into some sort of life. Even so orthodox 
 a writer as Jevons was compelled to admit 
 the gross fallacies of the orthodox creed. 
 Writing on the subject of labour, Jevons, 
 in his Theory of Political Economy, said: 
 
 " Although labour is the starting-point in produc- 
 tion and the interests of the labourer the very sub- 
 ject of the science, yet economists do not progress 
 far before they suddenly turn around and treat labour 
 as a commodity which is bought up by capitalists. 
 Labour becomes itself the object of the laws of supply 
 and demand, instead of those laws acting in the 
 distribution of the products of labour. Economists 
 have invented, too, a very simple theory to deter- 
 mine the rate at which capital can buy up labour. 
 The average rate of wages, they say, is found by 
 dividing the whole amount of capital appropriated 
 to the payment of wages by the number of labourers 
 paid, and they wish us to believe that this settles 
 the question ! " 
 
 The economic world resembles other fields 
 of human activity in this, that the intro- 
 duction of one evil frequently brings into 
 operation another which is equal and 
 opposite. Indeed it is evident that eco- 
 nomic stability has hitherto been attained 
 by neutralizing one evil force through the 
 creation of another. For example, the 
 evils engendered by the excessive demands 
 of capitalists, were balanced by the or- 
 
LABOUR, CAPITAL AND THE STATE 203 
 
 ganized defence of labour through its Trade 
 Unions in restricting output. For cen- 
 turies legislators have found it necessary 
 to oppose the greed of those who live on 
 usury by anti-usury laws. The develop- 
 ment of British trade during the past cen- 
 tury and a half is largely due to the ability 
 of our commercial men to evade the mono- 
 poly which was granted by William III 
 to the founders of the Bank of England, 
 by the development of the cheque system. 
 State encroachments usually call into ex- 
 istence societies for the protection of per- 
 sonal rights, whilst the efforts of individuals 
 or private corporations to oppress the 
 public, are invariably met either by those 
 of voluntary organizations who refuse to 
 have their liberties invaded, or by Anti- 
 Trust laws enacted by the State. // we 
 are to have a new and better economic dis- 
 pensation after the war, if we are to get rid 
 of the old wasteful industrial disputes 9 we 
 must have a new data of economics. We 
 must bury the old system and recognize it 
 as a miserable failure, which experience has 
 proved it to be. The object of the science was 
 
204 LABOUR, CAPITAL AND THE STATE 
 
 defined by Adam Smith in his Wealth of 
 
 Nations : 
 
 " Considered as a branch of the science of a 
 statesman or legislator, political economy proposes 
 two distinct objects. First, to supply a plentiful 
 subsistence for the people, or more properly to enable 
 them to provide such a revenue or subsistence for 
 themselves. 
 
 " Secondly, to supply the State or Commonwealth 
 with a revenue sufficient for the public services. It 
 proposes to enrich both the people and the sovereign." 
 
 " How happens it then," asked Proudhon, 
 " that in spite of so many miracles of in- 
 dustry, science and art, comfort and culture 
 have not become the inheritance of all ? 
 How happens it that in Paris and Lon- 
 don, centres of social wealth, poverty is 
 as hideous as in the days of Caesar and 
 Agricola ? " And the Economists were 
 dumb ! 
 
 Ruskin defined the orthodox science as a 
 " mere mercantile economy, i.e., the eco- 
 nomy of merces or of pay " " the accumu- 
 lation in the hands of individuals of legal 
 or moral claims upon or power over the 
 labour of others, every such claim implying 
 precisely as much poverty or debt on one 
 side as it implies riches or right on the other. 
 
LABOUR, CAPITAL AND THE STATE 205 
 
 It does not therefore necessarily involve 
 an addition to the actual property or well- 
 being of the State in which it exists." 
 (Fors Clavigera.) 
 
 Although so far as affording a means for 
 solving our industrial problems is con- 
 cerned, orthodox economics has failed, and 
 failed conspicuously, it still furnishes the 
 basis for most of the stock arguments em- 
 ployed by those who are opposed to innova- 
 tion and change. Curiously enough the 
 old delusion of the "economic man" a 
 productive machine endowed with one 
 animal quality, greed seems to have 
 formed the basis of that particular variety 
 of pacificism known as Norman Angellism. 
 According to this doctrine, men were ex- 
 pected to beat their swords into plough- 
 shares and their spears into pruning-hooks 
 as soon as it could be demonstrated that a 
 successful war couldn't " pay " ! That 
 millions of rational beings would gladly 
 rush to arms merely to defend a moral 
 principle, and prefer a violent death to 
 living in material comfort under a political 
 system of which they disapproved, ap- 
 
206 LABOUR, CAPITAL AND THE STATE 
 
 peared to some men unthinkable. That 
 there could be a higher and a stronger 
 passion than the desire to acquire wealth, 
 was evidently forgotten by these blind 
 materialists according to whose creed 
 " Man lives by bread alone." Those who 
 think this presentation of pacificism dis- 
 torted have only to read the recent writings 
 of Angellites like John A. Hobson, Ramsay 
 McDonald, and other members of the 
 Union of Democratic Control, to realize how 
 supreme commercialism ranks in the minds 
 of these people. We must not " humi- 
 liate " the Hun, in spite of his savagery, 
 treachery, and unspeakable atrocities, be- 
 cause it will be against our commercial 
 interests ! We must resume our friendly 
 trade relations with a nation that has 
 sworn to destroy us and our Empire by the 
 foulest means, because our trade with 
 Germany has been profitable ! In short, 
 honour, decency and self- respect must not 
 be allowed to interfere with the economy 
 of pay ! This is the Free-trader's new 
 chivalrous creed ] 
 
LABOUR, CAPITAL AND THE STATE 267 
 
 GULF BETWEEN LABOUR AND CAPITAL 
 
 The gulf separating labour from capital 
 is due entirely to the clashing of private 
 interests. The quarrel is over the division 
 of products. Each side demands as large 
 a slice as it can obtain. 
 
 Capital says to Labour, " Let us make 
 the produce as large as possible, then your 
 share will be larger." 
 
 To which Labour makes answer : tc Ex- 
 perience tells me that this increase would 
 only be temporary and would result in my 
 ultimate undoing. You are few and power- 
 ful, I am many and weak. Supposing by 
 extra toil I am able to double or treble the 
 output. What happens ? Since the effec- 
 tive demand for commodities (i.e., the 
 demand of those who have money to buy 
 with) is limited, as soon as you have stocked 
 your markets you will begin cutting down 
 expenses, reducing the number of em- 
 ployees. Your journals will talk of c over- 
 production.' Finding that you can now 
 satisfy the public demand with half the 
 men you formerly employed, you will turn 
 
 the other half adrift. Having temporarily 
 T.F. p 
 
208 LABOUR, CAPITAL AND THE STATE 
 
 raised their remuneration to get them to 
 increase their output, they will find they 
 have merely presented you with a whip with 
 which you are able to enforce your demands. 
 Having got rid of half your hands, you will 
 turn to those you have retained and say, 
 ' See the condition of your unemployed 
 fellows ! They would gladly return for 
 half your wages ! You cannot expect me to 
 continue your present rate when they are 
 willing to take your jobs for less. Accept 
 this rate, otherwise I must turn you 
 adrift and employ the other men.' We've 
 been through this before and don't intend 
 to be caught again. Our sole salvation 
 is in uniting to restrict output so that 
 the supply can never exceed the demand, 
 and by this means you will be bound to 
 employ all our members." 
 
 Under our present system of distribution, 
 this attitude of Labour is unanswerable. 
 . . . How then can these fundamental 
 differences be settled ? Profit-sharing is 
 offered by some as the key to the solution. 
 But as no fixed percentage has yet been 
 set up as an established rule, this solution 
 
LABOUR, CAPITAL AND TEE STATE 209 
 
 seems very indefinite and uncertain. A 
 certain Socialistic school holds that every 
 man should contribute to production " ac- 
 cording to his ability," and receive in return 
 a share of the produce " according to his 
 needs." But who is to determine one's 
 ability and whether every man is con- 
 tributing his share ? Who is to be the 
 judge of each man's needs ? In deter- 
 mining the method of distribution, we 
 must first get rid of all such exploded doc- 
 trines as those which have done duty for 
 so long in defence of a system which was 
 really indefensible such as that the pay- 
 ment of interest is the " reward of absti- 
 nence " ! We must proceed from an im- 
 personal standpoint and regard the nation 
 as a single unit. In other words the settle- 
 ment of the Labour versus Capital contention 
 can be made only by placing both parties 
 on the same side of the fence where their 
 interests will be mutual. 
 
 AN APT ILLUSTRATION 
 Consider then the owner of a business 
 
210 LABOUR, CAPITAL AND THE STATE 
 
 who employs himself exclusively with his 
 own capital, and who represents in his 
 person both Labour and Capital. How 
 would he use his returns ? First he would 
 provide himself and his family with suffi- 
 cient food, clothing, and shelter to maintain 
 them with a certain degree of comfort 
 depending upon his circumstances and the 
 level he had been accustomed to and for 
 the education of his children Next, he 
 would set apart a portion for maintaining 
 and renewing his capital providing for 
 wear and tear. Then he would allot a 
 sufficient sum for payment of rates and 
 taxes. If a surplus still remained, he might 
 probably use some for increasing his com- 
 forts at home, giving a higher education 
 to his children, giving them a summer 
 holiday trip, etc. The rest he would devote 
 either to enlarging his business or invest 
 in some safe manner in order to provide 
 for a " rainy day." Unless he were a miser 
 and mentally unsound he would certainly 
 not starve himself and family whilst his 
 capital was increasing by leaps and 
 bounds ! 
 
LABOUR, CAPITAL AND THE STATE 211 
 
 Now the economic distribution of wealth 
 should similarly be effected so that all the 
 prime factors were first provided for, to re- 
 place the energy and material expended 
 in production. // a nation is to maintain 
 its output year after year, its annual produc- 
 tion must be so distributed that both Labour 
 and Capital are kept in a constantly normal 
 and healthy condition. There are really 
 three parties to consider in this distribu- 
 tion, viz., Labour, Capital, and the State. 
 These three are bound to be maintained. 
 It appears to me therefore that no final 
 settlement of this question will ever be 
 accomplished until these are united in the 
 ownership, management and control of 
 industry. 
 
 Every industrial establishment should 
 in my opinion, therefore, be directed by a 
 representative of the State, the Capital- 
 owner and Labour respectively. The dis- 
 tribution of wealth would be made not, as 
 at present, according to the caprice or 
 selfishness of one particular class, but 
 according to the necessities and interests 
 of all three parties particularly for the 
 
212 LABOUR, CAPITAL AND THE STATE 
 
 purpose of maintaining and developing all 
 the factors of production. When this can 
 be accomplished, we shall hear no more of 
 curtailing or restricting output, since this 
 would mean an injury to Labour as much 
 as an injury to Capital and to the State. 
 Owing to the gigantic proportions which 
 our National Debt is assuming, the contri- 
 butions of Industry to the State are bound 
 to become more and more serious. Hence 
 industrial prosperity will become a necessity, 
 and the State will be bound to take a more 
 active interest in and acquire a greater 
 intimacy with Industry than heretofore. 
 
 Moreover, it will become more and more 
 apparent that we are all members of one 
 Society, the British Empire, to whom we 
 owe our safety and protection and to whom 
 in return for such protection we must all 
 contribute according to our ability. Is it 
 too much to expect that these intimate 
 relations between the State, Labour and 
 Capital must finally result in an industrial 
 partnership for the protection, develop- 
 ment and prosperity of the Empire and all 
 its members ? Then, every man will have 
 
LABOUR, CAPITAL AND THE STATE 213 
 
 the highest incentive to produce the greatest 
 possible quantity of wealth, knowing that 
 the greater the output the greater will be 
 the share of each individual. 
 
PROPERTY AND THE STATE 
 
CHAPTER XIV 
 
 (November 2nd, 1916) 
 
 PROPERTY AND THE STATE 
 
 SINCE the rise of the Labour party, the 
 demand for increasing the power of the 
 State over property has grown amazingly. 
 In almost every journal one reads nowa- 
 days dealing with trade, industry, labour 
 and capital, writers of all shades of political 
 opinion suggest or insist upon the necessity 
 for the State taking a more active interest 
 in economic affairs which formerly were 
 regarded as entirely outside the scope of 
 Government control. 
 
 The classical school of Mill and Spencer 
 with its doctrine of laissez-faire, seems to 
 have dwindled to microscopic proportions. 
 The old bogy of State Socialism with 
 which members of the various individu- 
 alistic schools were wont to frighten the 
 public seems to have lost its terrors. 
 
 217 
 
218 PROPERTY AND THE STATE 
 
 Indeed, we are now experiencing a degree 
 of State interference in every department 
 of life which would have seemed incredible 
 a decade ago, and which if attempted 
 half a century ago would have driven our 
 fathers and grandfathers into revolt. This 
 encroachment on the part of the State is 
 not confined to this country. It is part 
 of a world- wide movement in which every 
 Government has found it essential for 
 economic reasons to identify itself more 
 and more with the trade and industry of 
 its own people. Moreover, it is certain 
 that this movement is bound to increase 
 as the war proceeds. Whether we like it 
 or not we are in for an era of State control 
 over hundreds of matters which formerly 
 were regarded as purely personal. Let us 
 then inquire what we mean by the terms 
 State and Property as well as the cause 
 of this momentous change which has led 
 the public including many who were for- 
 merly classified as individualists to regard 
 the increased powers of Government with 
 complacency if not with favour. 
 
 By the word State, broadly speaking, 
 
PROPERTY AND THE STATE 219 
 
 we usually mean the governing power, 
 consisting of the three Governmental de- 
 partments : Administrative, Legislative, 
 and Judicial. In this country it would 
 comprise King, Cabinet, Parliament, Judici- 
 ary and Governmental officers, including 
 the military and police. But since the 
 Cabinet of late years has become practically 
 supreme, one frequently speaks of this 
 body, which wields entire political power, as 
 alone representing the State. In Germany, 
 where the Kaiser is an autocrat, he might 
 with truth define the State in the words 
 of another despot, "UEtat, c'est moil" 
 
 In the minds of some, the word has a 
 much more comprehensive meaning. The 
 advocate of State Socialism, for instance, 
 regards himself and every other citizen as 
 a part of the State. He considers the 
 State officials and members of Parliament 
 as merely directors of the State which 
 comprises the entire nation. Therefore 
 when he asks the Government to nationalize 
 the land, and the implements of production 
 generally, he does so in the belief that 
 everything will be conducted by the State 
 
220 PROPERTY AND THE STATE 
 
 officials for the sole benefit of the nation 
 including himself. To individualists, the 
 State represents merely a gang of office 
 holders often a corrupt and ignorant gang. 
 The strength of individualism has been 
 derived from history and experience. In 
 ail ages the State, whether autocratic, 
 aristocratic, oligarchic or democratic in 
 form, has been more or less oppressive, 
 wasteful and corrupt, and the greatest 
 human struggles in the past have been 
 those in which the people have attempted 
 to escape from or overthrow the tyranny 
 of the State. 
 
 With the recent extension of the repre- 
 sentative system, the public have ceased 
 to connect tyranny with Government- 
 except in countries where the autocratic 
 system still prevails. Fifty or more years 
 ago the fear of State oppression in England 
 was still acute, and the average citizen was 
 more concerned about preserving his per- 
 sonal liberty and freedom than developing 
 the trade of the Empire, or securing the 
 country against invasion. The improve- 
 ment in the education and status of the 
 
PROPERTY AND THE STATE 221 
 
 labouring classes has altered the political 
 conditions of all industrial countries very 
 materially. The working classes regard 
 the State more as their friend and saviour 
 than as a tyrant. For it is to legislation 
 they owe most of the advantages denied 
 to their forefathers. They point to the 
 numerous Factory Acts, Employers Lia- 
 bility Act, Education, Trades Union and 
 Pension Statutes as responsible for their 
 improved condition. And not unnaturally 
 they contend that by extending the powers 
 and scope of the State, all their disabilities 
 can be removed and the age-long struggle 
 between Labour and Capital can be finally 
 and peacefully settled. 
 
 Many modern writers point to the fact 
 that both from the moral and economic 
 standpoints the policy of laissez-faire has 
 been a dismal failure, that it tended to 
 divide society, and keep it divided, into 
 two classes the very poor and the very 
 rich ! The wisdom or folly of the " let- 
 alone " policy depends entirely upon the 
 particular stage when and where the policy 
 begins. Supposing, for example, a surgeon 
 
222 PROPERTY AND THE STATE 
 
 attempted to cure a disease by the use of 
 the knife which might readily be cured by 
 some more natural remedy. Before the 
 operation was begun, one would be justified 
 in exclaiming with the Flemish merchants 
 in answer to Conde, the French statesman, 
 who asked them what he could do to 
 improve their trade, " Laissez le faire " / 
 But supposing when the surgeon was half- 
 way through his experiment he were to 
 leave the patient with a bleeding gaping 
 wound ! The application of the " let- 
 alone " policy at this stage might result in 
 the patient's death ! 
 
 The stage at which the British Govern- 
 ment adopted the laissez-faire policy was 
 when certain privileged classes already 
 controlled two of the essential factors of 
 trade and production, i.e., land and credit; 
 and the attitude of the capitalistic class 
 towards labour at that time was such that 
 hundreds and thousands of the labouring 
 classes died of misery and starvation ! No 
 wonder the laissez-faire policy failed ! The 
 theories of Mill and Spencer were to the 
 effect that the State should confine itself 
 
PROPERTY AND THE STATE 223 
 
 to the duty of protecting the life, liberty 
 and property of the citizens. But here 
 again nothing was said as to the particular 
 stage of social development at which the 
 State could safely relinquish all its other 
 functions. And unless and until a system 
 of economic justice is firmly established, 
 by which each member of the community 
 is enabled to provide properly for the 
 needs of himself and family, the State 
 must interfere to save society from civil 
 war or anarchy. 
 
 The protection of property has always 
 been regarded as a duty of the State 
 co-equal with the protection of life. Now, 
 what is property ? Probably the two most 
 famous definitions of both property and 
 the State originated with two Frenchmen. 
 " UEtat tfest moi ! ' : came from the lips 
 of the autocratic Louis XIV. " Qu'est ce 
 que la propriete ? C'est le vol ! " wrote 
 Pierre J. Proudhon in his famous Essay 
 on Property. But Proudhon referred not 
 to material things, which we term property, 
 or commodities, but to the legal right to 
 
 increase which the ancients termed usury 
 T.F. Q 
 
224 PROPERTY AND THE STATE 
 
 (i.e., payment for the use of things), and 
 which the modern world disguises under 
 the terms interest, rent, and profits. 
 
 But there are other reasons which have 
 influenced a vast number to advocate a 
 greater control by the State over wealth 
 and production. Whilst the nation is an 
 aggregation of millions of individuals, it is 
 per se an organic whole, and the moral, 
 economic and physical condition of the 
 individuals affects the entire organism. A 
 nation is weak or strong according as the 
 physical, moral and economic condition of 
 the bulk of its population is bad or good. 
 Men cannot live wholly to themselves. 
 They must therefore take some interest in 
 the condition of their neighbours in order 
 to enjoy a certain measure of safety, 
 comfort and happiness themselves. With 
 the vast increase in the population, the 
 question of food supplies, transportation, 
 banking facilities, sanitary conditions, good 
 housing accommodation, good roads, good 
 light, pure water, pure milk, and hundreds 
 of others, are of vital importance to every 
 citizen. 
 
PROPERTY AND THE STATE 225 
 
 The Roman law regarding property upon 
 which European laws have been based, 
 asserted the right of the owner " to use and 
 abuse " his property as he saw fit. And 
 whilst this right exists to-day in regard 
 to most articles which are easily repro- 
 duced, such as clothing, furniture, news- 
 papers, matches, etc., it is not permissible 
 with property which is recognized as a 
 public necessity and difficult to reproduce 
 a railway or canal, for instance. To-day 
 we should consider any one a criminal who 
 deliberately destroyed good food, oil, 
 machinery, coal, leather or any com- 
 modity essential for the national 
 safety. The claims of the nation are 
 now regarded as superior to those 
 of the individual. And private owner- 
 ship in its original meaning especially 
 of such things as are essential to society, 
 to wealth production, to national defence 
 is being recognized more and more as 
 an anomaly, as a possible menace to the 
 community. 
 
 The right to use a thing properly would 
 be generally conceded, but the right to 
 
226 PROPERTY AND THE STATE 
 
 abuse it (i.e., weaken or destroy) is now 
 seriously challenged. Society has already 
 forbidden a man to abuse his dog or his 
 horse simply on moral grounds. It is 
 but a short step to forbid the abuse (i.e., 
 destruction or even misapplication) of inani- 
 mate things. In a community where every 
 inch of the soil is needed for agriculture 
 for the support of the population, it should 
 be made a crime to convert acres into a mere 
 game preserve. We have recently wit- 
 nessed two of the most important club 
 buildings in London given up readily by 
 their members on behalf of State require- 
 ments. Thousands of privately owned 
 works have been willingly placed under 
 State control for munition work. In short, 
 we are rapidly approaching a condition 
 when private ownership will be transformed 
 into, or limited to, public trusteeship. 
 
 GERMANY'S INDUSTRIAL POWER 
 
 Another reason why State control is 
 meeting with general favour is due to 
 economic considerations. One of the great- 
 est factors in the recent prodigious growth 
 
PROPERTY AND THE STATE 227 
 
 of industrial power is organization. Ger- 
 many's unparalleled industrial development 
 during the past forty years is due to her 
 genius for organization. The organized 
 efforts of 100 men are enormously more 
 effective than that of thousands unorgan- 
 ized and operating independently. If the 
 millions of men comprising the Italian 
 armies had exerted themselves separately 
 and independently, not a single gun would 
 have been raised a single foot towards the 
 summit of their mountain ranges where 
 our brave Ally is now successfully beating 
 back the enemy's organized preparedness 
 of fifty years past. Union is strength in 
 every department of human activity, whether 
 physical, industrial, moral, social, political, 
 financial, or military. 
 
 The economic strength of a nation is as 
 much the result of organization as is its 
 military strength. And organization to be 
 effective must be concentrated in few 
 hands. How can this be accomplished 
 except through the State ? The State is 
 the only body at present existing through 
 which the industrial energies of the millions 
 
228 PROPERTY AND THE STATE 
 
 comprising a nation can be organized into 
 a united force. Of course, the weakness 
 of State control lies in the possibility of 
 its offices being filled by incompetents or 
 something even worse. Theoretically, how- 
 ever, State control in economic affairs 
 should stand for strength and efficiency. 
 To-day the State is already an active 
 participant in most of our industrial affairs, 
 and to a degree undreamt of a few years 
 ago. Is this participation to continue after 
 the war ? Personally, I am inclined to 
 think that it must, through force of cir- 
 cumstances. Our people have been com- 
 pelled to transform themselves from a 
 peaceful industrial nation into a militant 
 type of society, and the voluntary co-opera- 
 tive system has had to give way to the 
 compulsory system. The aggressiveness of 
 the German character has not only forced 
 militancy upon all the nations of Europe, 
 but for years past it has completely changed 
 the character and conditions of inter- 
 national trade. The peaceful character of 
 trade as preached by Cobden and his 
 disciples, has given place to industrial 
 
PROPERTY AND THE STATE 229 
 
 warfare, and the possession of markets 
 are among the professed objects for which 
 armies and navies are maintained. It is 
 not generally known, but the day that 
 Bismarck established the gold-standard in 
 Germany under the advice of an inter- 
 national Jew moneylender, Bleichroeder 
 saw the end of England's free-trade system. 
 Since then, international trade has been a 
 system of warfare an international strug- 
 gle for gold as the prize. Prior to 1870 
 our trade with Germany was an exchange 
 of labour products. Competition began as 
 soon as Germany was placed on the same 
 monetary plane. Consequently from 1874 
 to 1900 our exports remained stationary 
 in fact, they actually declined per capita 
 although during the previous thirty years 
 our export trade had increased to the 
 extent of over 500 per cent. ! 
 
 There is every indication that this hostile 
 character of trade will be greatly intensified 
 after the war, and hence we shall require 
 the strongest possible system of organi- 
 zation in all our industrial, financial, and 
 commercial operations. 
 
THE COMING TRADE WAR 
 
CHAPTER XV 
 
 (November 23rd 1916) 
 
 THE COMING TRADE WAR 
 
 THROUGHOUT the civilized world the 
 opinion is very general that the cessation 
 of military hostilities will be succeeded by 
 an economic war, far more bitter and 
 relentless than anything yet known. This 
 " War after the War," as it is termed, was 
 first threatened as soon as the German 
 rulers realized that their great military 
 conspiracy for the conquest of Europe 
 had definitely failed. For thirty years 
 prior to the war, the leaders of pan-Ger- 
 manism had been watching with growing 
 satisfaction the steady, silent strangle-hold 
 which their people were acquiring upon 
 every branch of commerce, industry and 
 finance throughout the world. By their 
 system of peaceful penetration they were 
 achieving conquests which bid fair to 
 
 233 
 
234 THE COMING TRADE WAR 
 
 surpass anything ever obtained from mili- 
 tary successes. As a result of their in- 
 dustry, perseverance, patience, audacity, 
 unscrupulousness, and genius for organiza- 
 tion, the German people were with the 
 assistance of their foreign Ambassadors 
 and Consuls securing the control of one 
 industry after another. Unfortunately for 
 them although fortunately for all other 
 nations this method and rate of conquest 
 was too monotonous and too slow for their 
 leaders. This underground method of war- 
 fare left their military class unoccupied. 
 Hotheads like the Kaiser and his unspeak- 
 able son, wanted something far more 
 exciting and spectacular. Hence the pre- 
 sent war with its horrors and its frightful- 
 ness. One is tempted to imagine what 
 the next twenty-five years might have 
 brought forth had these rash fools been 
 controlled by a Bismarck, and the steady, 
 patient, economic pressure had been allowed 
 to continue. At some date not far distant 
 the German historian will chronicle the 
 fact that in the early part of the twentieth 
 century the conquest of a vastly greater 
 
THE COMING TRADE WAR 235 
 
 and wealthier Empire than anything dreamt 
 of by Alexander or Caesar lay within the 
 grasp of the German people a conquest 
 as remarkable as it would have been 
 original. All that was required to effect 
 this great consummation was a continuance 
 of the same efforts and methods which 
 were in operation in the year 1914 when 
 the Prussian Kaiser by precipitating war 
 wrecked the Central Empires and destroyed 
 for ever the supremacy of the German 
 race. On the other hand, the historian 
 of Britain will probably trace in all this 
 upheaval the hand of Providence, using 
 the Emperor of the Huns as his instrument 
 to awaken the nations from their lethargy, 
 and warning them of the net which the 
 enemies of God and man had prepared with 
 which to entrap and then enslave them ! 
 
 At the opening of the Economic Confer- 
 ence of the Allies at Paris last June the 
 French Premier said : 
 
 " The war has shown us the extent of economic 
 slavery to which we were to be made subject. We 
 must realize that the danger was great, and that our 
 adversaries were on the eve of success. Then came 
 the war. The war, with its immense sacrifices 
 which it demands, will not have been in vain if it 
 
236 THE COMING TRADE WAR 
 
 brings about an economic liberation of the world, 
 and restores sane commercial methods. We are all 
 determined to shake off the yoke which was being 
 forced upon us, and to resume our commercial inter- 
 course in order freely to join it to that of our Allies." 
 
 The result of this Conference we all 
 know. It was embodied in a series of 
 recommendations by the representatives 
 of the Allied Governments, in which various 
 measures were proposed for meeting the 
 threatened economic aggression of the 
 enemy. Unfortunately these recommen- 
 dations remain, so far as the Government 
 of this country is concerned, almost un- 
 heeded. 1 What future action our rulers 
 intend taking we do not yet know. But 
 the recent Parliamentary discussion and 
 decision of our Colonial Office regarding 
 the sale of enemy lands in Nigeria have 
 given serious cause for alarm, and shows 
 that the Paris Conference has apparently 
 carried little weight with certain Ministers. 
 Indeed it is known that in certain influ- 
 ential quarters the proposed measures are 
 not only regarded as objectionable, but 
 have already met with ridicule. 
 
 1 Since this was written Lord Balfour's Committee 
 has reported favourably upon the adoption of certain 
 suggestions made by this Conference, 
 
THE COMING TRADE WAR 237 
 
 Although the vast majority of the British 
 people shed their party politics the day 
 the German troops invaded Belgium, a 
 small section found this operation dis- 
 agreeable if not impossible. And much 
 as we may deplore the fact, we shall be 
 compelled to hear a revival of the centuries- 
 old discussion of Free Trade versus Protec- 
 tion as soon as peace is within sight. In 
 view of this threatened recrudescence of a 
 dispute that ought to have been finally 
 settled long ago, it is necessary that the 
 preparation for the war which is to follow 
 should be made at once. 
 
 We now realize the appalling price in 
 blood and wealth our military unprepared - 
 ness has cost us and our Allies, and we 
 know that much of the responsibility for 
 this unpreparedness lies at the door of 
 the busy little group of pacifist fanatics 
 who thirty months ago assured us that 
 the threat of German military aggression 
 was a stupid and wicked invention of our 
 jingoes and hireling journalists ! We are 
 now told by the self-same group that 
 " to pretend that all this activity (i.e., 
 
238 THE COMING TRADE WAR 
 
 German industrial, commercial and finan- 
 cial enterprise) is in the main a screen to 
 an instrument of Prussian State policy, 
 aimed to penetrate all countries of the 
 world commercially and financially, in 
 order to convert this economic into political 
 control, is idle vapouring, whether it 
 proceeds from angry bagmen or from states- 
 men who should be 'responsible.'" The 
 same writer adds : 
 
 " The notion that all this expanding German trade 
 and finance have been the cats-paw of the aggressive 
 German State is baseless. The capitalists who rule 
 German industry, trade and finance are out for profit, 
 not for political aims, and their success would have 
 been impossible on any other terms." 
 
 The writer of the above, Professor J. 
 A. Hobson, is the most widely read Free 
 Trade " authority " in this country, whose 
 opinion is accepted by certain Radical 
 ministers as conclusive. One would have 
 thought that after all the innumerable 
 exposures of German State intrigues in 
 America, Russia, Poland, Holland, Belgium, 
 France, Italy, Turkey, Rumania, Greece, 
 Spain, Mexico, Africa, and elsewhere, any 
 doubt as to German commerce and finance 
 
THE COMING TRADE WAR 239 
 
 being employed by the Pan-Germanists as 
 instruments for German political aggres- 
 sion, would have been definitely set at 
 rest for all time. To deny this aggression 
 is to deny the evidence of one's own senses 
 as well as the testimony of clouds of wit- 
 nesses in all countries. If the bare asser- 
 tions of a few fanatics are to obtain cre- 
 dence, we might as well accept the recent 
 testimony of Miss Emily Hobhouse as to 
 the comparatively happy condition of 
 Belgium under the Huns, or the statements 
 in the famous appeal of the ninety-three 
 German professors to the civilized world 
 in which among other things they denied 
 " that we (the German armies) trespassed 
 in neutral Belgium," " that our troops 
 treated Louvain brutally," " that our war- 
 fare pays no respect to international laws." 
 To attempt to argue with those who 
 meet known facts with brazen denials is 
 a waste of time. But there is one question 
 in relation to this subject which needs 
 consideration. According to certain Free 
 Trade writers, international trade is merely 
 
 an exchange of goods or services, in which 
 T.F. B 
 
240 THE COMING TRADE WAR 
 
 the gains or benefits are mutual and equal. 
 This being so, how can such trade be 
 termed " aggressive " ? How can there 
 be a trade " war " ? " Imports," they 
 say, " must be paid for by exports or not 
 at all, and these exports consist of either 
 commodities or services, and in any case 
 they provide employment for our own 
 people." " This," they add, " is the con- 
 clusion of the whole matter." The notion 
 of trade as a " contest " in which one of 
 the trading parties secures " domination " 
 over the other, the notion that protective 
 tariffs and other barriers are needed for 
 " defence," and the notion that such 
 " defence " can be successfully obtained 
 by any of these methods, are termed by 
 the Free Trade professor " curious assump- 
 tions." 
 
 Now if the assertions of the so-called 
 Free Trade school are correct if inter- 
 national trade is nothing more than simple 
 barter, i.e., the exchanging of one class 
 of goods for another, the shipment of the 
 surplus products of one country in return 
 for those of another, beginning and ending 
 
THE COMING TRADE WAR 241 
 
 at the frontiers of such countries all this 
 talk of trade " war," economic " slavery " 
 and " aggression " is mere " idle vapour- 
 ing." In this case we must also regard 
 the Paris Conference as a waste of time 
 and money, and its recommendations should 
 be disregarded. If, however, international 
 trade is something far more serious than 
 barter, if it means the possible foreign 
 control of our factors of wealth production 
 to such an extent as to threaten our 
 existence, then every barrier possible no 
 matter by what name it has hitherto been 
 known, whether " Tariff Reform," " Trade 
 Protection " or " Prohibition " should be 
 raised by us and our Allies against the 
 enemy. And those writers who would 
 seek to deceive the nation by lulling us 
 into a false security by deliberate deception 
 and propagating economic heresies should 
 be branded as false teachers and traitors ! 
 Half a century and more ago when the 
 Manchester school was in its zenith, trade 
 was a much simpler and less comprehensive 
 affair than it has since become. Trade as 
 defined and understood by Richard Cobden 
 
242 THE COMING TRADE WAR 
 
 was precisely as it is defined to-day in 
 certain standard Free Trade works. The 
 " Trust " and " Combine " had not been 
 invented. Finance was then a far less 
 potent factor in trade and industry. It 
 was regarded more as the tool of exchange. 
 To-day finance rules supreme. Industry 
 and commerce are its servants. In all 
 countries finance dominates every sphere 
 of human activity. It governs trade, com- 
 merce, industry, inventions, science, art, 
 politics, the State, and even the Church 
 itself. The creation of the trusts has 
 been the work of finance. And nowhere 
 have these trusts met with greater en- 
 couragement from the State than in Ger- 
 many. The United States, which has been 
 similarly afflicted, has attempted by legis- 
 lation to suppress them, although with 
 comparatively little success, owing to their 
 vast political power. Those familiar with 
 their methods know how all-pervading 
 this power is, how ruthlessly individuals 
 and private firms have been driven out 
 of business exterminated by the unscru- 
 pulous use of concentrated economic power I 
 
THE COMING TRADE WAR 243 
 
 The foreign trade of Germany of late 
 years was largely in the hands of these 
 great combines and trusts. When a foreign 
 market seemed desirable for certain German 
 specialities, the well-known method of 
 underselling competitors and long-time 
 credits were practised. Behind these trusts 
 stood the German Government ready to 
 guarantee them against losses incurred in 
 strangling foreign competitors and securing 
 foreign markets. I know of one case 
 where a great electrical supply company 
 of Berlin furnished the Buenos Ay res market 
 with 500,000 of electrical apparatus far 
 below cost, at a loss of 200,000 at least, 
 which was afterwards repaid them by 
 their Government. Hand in hand with 
 these methods went also the control of all 
 the agencies by which the public wants 
 were supplied advertising, transportation 
 and distribution. Germans of all classes 
 and occupations flocked to these various 
 markets in order to control every branch 
 and avenue of trade and its tributaries. 
 In Belgium, for example, the Germans 
 controlled most of the merchandise trans- 
 
244 THE COMING TRADE WAR 
 
 port. Everywhere they established their 
 banking houses, and by offering cheaper 
 credit facilities than their competitors they 
 secured a vast volume of the financial 
 business of foreigners. This gave them an 
 insight into the private affairs of their 
 trade competitors, such as terms, prices, 
 etc., which they did not scruple to make 
 use of for the benefit of Germans. They 
 started German clubs which were mere 
 centres of Government spies. They secured 
 interests in foreign journals which they 
 utilized to foster German influence and 
 power in every sphere. To what extent 
 they used these privileges and opportunities 
 afforded them by the generosity of their 
 unsuspecting friends and neighbours, the 
 Belgians, the Dutch, the Italians, the 
 Americans to say nothing of ourselves 
 the history of the past twenty-nine months 
 bears eloquent testimony. Prior to the 
 war, the Belgians feared that within a few 
 years the annexation of their country to 
 the German Empire would be a certainty. 
 
 The error of Free Traders is in supposing 
 that trade is merely an exchange of com- 
 
THE COMING TRADE WAR 245 
 
 modities. On the contrary, trade nowadays 
 means the exchange of commodities or 
 services for money and credit, i.e., legal 
 claims upon society. The object of the 
 successful tradesman is to acquire wealth, 
 which takes the form of investments, 
 lands, bonds, shares, mortgages, etc. And 
 all these forms of wealth are merely claims 
 backed by the power of the State upon 
 labour, present and future. These claims 
 are a source of economic power. 
 
 Now economic power is the basis of 
 political power. Surely there can be few 
 questions more serious or important than 
 into whose hands the economic and political 
 power of a nation is to reside ? Moreover, 
 the political affairs of a nation naturally 
 affect those who control its economic 
 power, for the reason that such power 
 can only be enjoyed by the authority of 
 the State. States have been known to 
 repudiate their foreign obligations. Hence 
 universally we find the foreign claims of 
 the financial and commercial classes of 
 each country backed by its own military 
 and naval power. The naval power of 
 
246 THE COMING TRADE WAR 
 
 Great Britain was called upon some years 
 ago to enforce the claims of British owners 
 of Egyptian bonds, whilst Germany did 
 the same with Venezuela on behalf of her 
 own financiers. 
 
 Political and economic power are always 
 found in close alliance. They act and 
 react on each other, each rendering assist- 
 ance and support to the other when re- 
 quired. Trade warfare is a struggle for 
 economic power, for the control of men 
 and of all the factors of wealth production. 
 International Free Trade can only flourish 
 among free nations. And complete free- 
 dom cannot exist where the tools of trade 
 money and credit are the subjects of 
 private monopolies, as they are in this 
 country to-day. Moreover, Free Trade, like 
 cricket, has its rules and obligations, ob- 
 servance of which is essential to a continu- 
 ance of the policy. To trade freely with 
 a nation like Germany, that holds such rules 
 and obligations in contempt, the policy 
 would be suicidal to the nation attempting 
 it. Free Traders are right in asserting that 
 tariffs tend to restrict the production of 
 
THE COMING TRADE WAR 247 
 
 wealth. If Germany had succeeded in 
 conquering Europe, Free Trade would prob- 
 ably have been established throughout 
 the entire Continent, which would have 
 become an enlarged Teutonic Empire, just 
 as it was established throughout Germany 
 when Bismarck welded all the former 
 petty states into one nation. No Pro- 
 tectionist or Tariff Reformer would deny 
 that economically Germany has benefited 
 enormously by the abolition of all her 
 former inter-State tariffs. 
 
 But Europe is confronted by a far more 
 serious danger than a curtailment of her 
 annual wealth production, and that is 
 the danger of each nation especially the 
 smaller ones losing its liberty and nation- 
 ality. Rather than forfeit these things, few 
 would hesitate to sacrifice a portion of their 
 annual revenue on behalf of securing them- 
 selves and people against such a menace ! 
 On behalf of the future security of the 
 British race and Empire, our enemy who 
 advertises himself as our sworn and im- 
 placable foe, who has shown himself to be 
 false, treacherous, cunning, and utterly 
 
248 THE COMING TRADE WAR 
 
 untrustworthy should be denied every 
 opportunity of acquiring the means of 
 again threatening the peace and safety of 
 the world. The measures recommended 
 by the Allied representatives at the Paris 
 Conference should be adopted by the 
 Allies forthwith. Not only does the safety 
 of our Empire but that of civilization de- 
 mands that we free ourselves from the 
 future menace of the enemy's methods of 
 peaceful penetration. 
 
STATE CONTROL OF INDUSTRIES 
 
CHAPTER XVI 
 
 (December lih, 1916) 
 
 STATE CONTROL OF INDUSTRIES 
 
 WITH the establishment of a Ministry of 
 Munitions there occurred one of the most 
 remarkable industrial revolutions in British 
 history. By a mere stroke of the pen, a 
 large proportion of the industries of Great 
 Britain were suddenly transformed from 
 independent competitive enterprises into 
 one vast co-operative system for the object 
 of producing munitions and supplies for 
 military and naval purposes. This revolu- 
 tion was accomplished not only without 
 bloodshed, riots or friction, but was actu- 
 ally welcomed by the majority of the 
 industrial classes concerned ! Over four 
 thousand independent firms, employing 
 between 2,000,000 and 2,500,000 people, 
 have thus been brought under direct Gov- 
 ernment control. 
 
 251 
 
252 STATE CONTROL OF INDUSTRIES 
 
 It will be interesting to see how this 
 control was accomplished, what it involves, 
 and what benefits it has achieved. Under 
 the special Defence of the Realm Act, very 
 elastic and far-reaching powers were con- 
 ferred upon the Government. The acquisi- 
 tion of these powers was comparatively 
 simple, requiring merely the vote of Parlia- 
 ment. The extraordinary feature was, the 
 cheerful readiness with which the public 
 accepted these innovations and interfer- 
 ences with their rights and liberties. Indeed, 
 it is a fact worth noting, that from the 
 very beginning of the war the public 
 readiness to surrender its liberties and 
 privileges for the national safety and 
 welfare has always been far in advance 
 of the Government demands. On the 
 question of providing ways and means no 
 Government has ever had a smoother task. 
 The one serious criticism which has been 
 heard from all classes is, the tardiness of 
 the Government in employing more fully 
 and speedily the help and assistance offered. 
 
 The limits of the State control of our 
 industries have not yet been defined. The 
 
STATE CONTROL OF INDUSTRIES 253 
 
 powers conferred would permit the Govern- 
 ment to do anything considered to be 
 essential for the national safety. When 
 the writer received the official announce- 
 ment that his works were to be controlled, 
 his associate the owner of a large Midland 
 engineering works wrote as follows : " This 
 will not affect your business except in the 
 matter of profits. The Government will 
 take charge of everything in excess of a 
 certain percentage." 
 
 Since that was written, however, Govern- 
 ment control has made considerable pro- 
 gress. As to various details of procedure 
 it may be stated that contracts for such 
 supplies as can most readily be furnished 
 by the contractors, are offered them. The 
 contractor tenders at his own price. If 
 this appears excessive, he is either invited 
 to headquarters or a representative of the 
 Army Contracts Department or Ministry 
 of Munitions may call and explain that 
 his tender is too high, that other firms 
 are doing similar work for a less figure, 
 and he is asked to reconsider his estimate. 
 If he insists on his price terms, his tender 
 
254 STATE CONTROL OF INDUSTRIES 
 
 may be refused or the contract may be 
 given him with the understanding that 
 if it is found that he is making excessive 
 profits, the Government will exercise their 
 right to reduce the contract price. 
 
 The books of the State-controlled firm 
 are open to the inspection of Government 
 auditors at all reasonable times. Weekly 
 or fortnightly reports have to be sent to 
 headquarters on special forms stating the 
 condition of each contract and the progress 
 of work. Inspectors, both general and 
 local, visit all such firms from time to 
 time to see that Government orders are 
 being pushed forward and not impeded or 
 hindered by other work. No restrictions 
 are imposed upon firms for tendering or 
 executing orders for their own clients 
 except the understanding that Government 
 contracts must always take precedence. 
 It naturally follows that where Government 
 contracts are large enough to engage a 
 firm's entire plant, all other work has to 
 be indefinitely postponed. 
 
 Controlled firms cannot add new machin- 
 ery to their plant without the Government's 
 
STATE CONTROL OF INDUSTRIES 256 
 
 consent. Nor can machine and tool makers 
 supply such firms without special sanction 
 and certificates. Various conditions are 
 also imposed upon controlled firms regard- 
 ing rates of wages, hours of employment, 
 holidays, etc. " Sweating " is of course 
 not permitted under any circumstances. 
 The sale and purchase of material particu- 
 larly metals, such as copper, nickel, brass 
 and steel are all State-regulated, and 
 special forms and certificates setting forth 
 the class of work, numbers of Government 
 orders, for which the material is required, 
 must accompany every order. So far, 
 however, as the management and running 
 of these controlled factories is concerned, 
 little if any change has been occasioned. 
 If through mismanagement, ignorance or 
 carelessness work is spoiled or defective, 
 the entire loss falls on the firm responsible. 
 The Government does not attempt to 
 interfere with a firm's particular methods 
 of manufacture. On the contrary, every 
 encouragement is given by the various 
 Government departments concerned to help 
 firms in increasing their output and in 
 
 T.F. S 
 
256 STATE CONTROL OF INDUSTRIES 
 
 settling any disputes and overcoming fric- 
 tion with workmen. Herein lies the secret 
 of much of the success achieved by the 
 administration of the Ministry of Munitions 
 which has succeeded in securing and main- 
 taining all the advantages of individual 
 initiation and enterprise under State organi- 
 zation. 
 
 MUTUAL AID 
 
 A spirit of mutual aid has also been 
 fostered among firms which were formerly 
 bitter rivals. Information as to improved 
 methods of manufacture, instead of being 
 kept profoundly secret as heretofore, is 
 offered by firms to each other whenever 
 requested, chiefly no doubt from patriotic 
 motives with a view of winning the war 
 as quickly as possible. 
 
 What benefits, if any, has this association 
 of the Government with private firms 
 conferred upon industry at large ? Does 
 it tend to improve industrial conditions ? 
 Does it make for efficiency or the reverse ? 
 These questions have an all-important 
 bearing, not only upon the present war, 
 
STATE CONTROL OF INDUSTRIES 257 
 
 but upon the future of British industry, 
 and particularly in view of the coming 
 trade war for which we have now to pre- 
 pare. There can be no doubt that State 
 control has proved enormously beneficial 
 to the nation and has tended to efficiency, 
 and consequently to increase of production. 
 In the first place, the mere substitution of 
 the co-operative for the competitive system 
 alone, has been of incalculable value. 
 Instead of the sordid spectacle of a dozen 
 or more firms competing to secure contracts 
 for certain limited supplies in which prices 
 are driven down to the farthest point 
 scarcely consistent with a bare living wage 
 for labour and a minimum rate of return 
 to capital, we are presented with the 
 picture of an unlimited demand for goods 
 at fair (in many cases high) prices, enabling 
 the employer to pay labour the highest 
 wages in this country's industrial history 
 and giving abundant returns to capital 
 with a surplus for taxation. The result is 
 an era of the greatest industrial prosperity 
 ever known ! 
 
 Some writers will see in this a complete 
 
258 STATE CONTROL OF INDUSTRIES 
 
 demonstration of the claims of State 
 Socialists as to the benefits accruing from 
 the State ownership of all the means of 
 production. But we have not yet arrived 
 at this stage. We are at present enjoying 
 the advantages of individual efficiency com- 
 bined with State organization. Had the 
 Government adopted the principle of abso- 
 lute State ownership, the results would 
 most likely have been different. Very 
 wisely, Mr. Lloyd George at the outset of 
 his administration, invited the leading 
 manufacturers and business men to join 
 him, and most readily and loyally they 
 responded. Instead of becoming a mere 
 politically controlled organization operated 
 by politicians and their friends, the con- 
 trolled firms have been entirely free from 
 all such pernicious influences. The hitherto 
 insuperable objection to the State owner- 
 ship of industries has been the fear that 
 the efficiency of private ownership and 
 management would be exchanged for State 
 wastefulness and mismanagement. Whether 
 in the future the State can be so improved 
 as to dissipate such fears remains to be 
 
STATE CONTROL OF INDUSTRIES 250 
 
 seen. If it can, the claims of State socialism 
 are brought within the scope of practical 
 politics. Until then, the association of 
 the State with industry should be strictly 
 limited and defined. Within such limits, 
 the association has so far proved itself to 
 be useful and beneficial in introducing the 
 co-operative spirit, in greatly increasing the 
 remuneration of labour, in organizing a 
 great variety of industries to one particular 
 end, and in adjusting and settling differ- 
 ences between labour and capital. In my 
 judgment this association of the State with 
 industry should be continued after the war. 
 Merely to be in the position of umpire in 
 any future disputes, would alone fully 
 justify such association. But there are 
 other considerations. 
 
 It will be noticed that one of the main 
 successes of State control has been the 
 equalization of industrial and labour con- 
 ditions throughout the country. Instead 
 of allowing a few firms to take the cream 
 of the orders whilst others are scarcely 
 able to employ themselves on half time, 
 each controlled firm has been provided 
 
260 STATE CONTROL OF INDUSTRIES 
 
 with sufficient to keep its plant running 
 to its full capacity. This is due to the 
 fact that the Government has acted as a 
 sort of National Clearing House, distribut- 
 ing orders for goods fairly and impartially, 
 and collecting and distributing the supplies 
 in response thereto. This is an unquestion- 
 able advantage to the nation and quite 
 impossible under the -pre-war laissez-faire, 
 go-as-you-please, devil-take-the-hindmost 
 policy. How to organize and maintain a 
 similar system for producing and distributing 
 the munitions of life after the war is a problem 
 which ought to be worked out immediately. 
 Its solution will contain the means for 
 achieving the future industrial prosperity of 
 the Empire and the welfare and happiness 
 of all classes. 
 
 The Ministry of Munitions has recently 
 opened a branch known as the Welfare 
 Department, under the direction of Mr. 
 Seebohm Rowntree, which promises enor- 
 mous benefits to our industrial classes. 
 Inquiries and investigations are being made 
 all over the country regarding the physical 
 conditions existing in our works, the health 
 
STATE CONTROL OF INDUSTRIES 261 
 
 of the workers, the lighting, heating, venti- 
 lating, the canteen and sanitary arrange- 
 ments, the number of working hours, the 
 question of Sunday labour, the amount of 
 sickness and its causes, special industrial 
 diseases and their cure, the question of 
 fatigue and its cause, of .workers' food 
 their home life and housing, the employment 
 of women and children, etc. Here we find 
 a really practical and honest attempt by 
 the Government to humanize labour con- 
 ditions, to bring about changes under 
 which employees will cease to be regarded 
 as merely machines, or money-making 
 instruments for the benefit of employers. 
 The truth has at last dawned on the 
 minds of very many of our leaders of 
 thought, that the health, prosperity and 
 happiness of the vast masses of our popu- 
 lation is not only an end worth pursuing 
 in itself, but is an important factor in 
 maintaining the industrial prosperity of 
 the nation. 
 
262 STATE CONTROL OF INDUSTRIES 
 
 THE LABOUR FACTOR 
 
 The labour factor is the most valuable, 
 the most precious asset a nation can 
 possess and it ought to be treated as 
 such ! Together with the land it is our 
 only fundamental source of wealth. We 
 are witnessing to-day a practical demon- 
 stration of a truth I pointed out many 
 years ago to the chief of the Labour Bureau 
 in Washington during the period of the 
 McKinley Tariff Bill discussion. It was 
 the claim of the party of high protection 
 at that time, that tariffs were directly the 
 cause of industrial prosperity which resulted 
 in high wages. My contention was and is 
 to-day that high wages are the cause of trade 
 prosperity. This can easily be shown. Con- 
 sumption is the parent of demand, and 
 demand is the parent of supply. The 
 great consuming classes are the industrial 
 workers. Give them the means to make their 
 demands effective namely, high wages and 
 they at once create the demand sufficient to 
 keep themselves in constant employment. In 
 short, industrial prosperity, instead of being 
 
STATE CONTROL OF INDUSTRIES 263 
 
 intermittent and like the weather, variable 
 and uncontrollable t ought to be continuous 
 so long as the prime factors, land and labour, 
 remain unexhausted. The secret of con- 
 tinuous trade activity many are beginning 
 to understand. This is, to return to the 
 original factors of production the bulk of 
 the produce, sufficient to maintain their 
 health and development, according to their 
 needs, so that consumption, demand and 
 supply can increase in the same propor- 
 tion. 
 
 The State has the supreme power of 
 effecting this happy consummation. It can 
 assist in organization, in maintaining the 
 principle of co-operation, in humanizing 
 industrial conditions, in ending finally all 
 contentions between the two factors, labour 
 and capital, in solving the problem of the 
 distribution of wealth in such a manner 
 as will ensure a continuous steady growth 
 of trade year after year, and therefore the 
 constant and regular employment of every 
 man and woman in the particular occupa- 
 tion for which each one is best fitted. No 
 Government since the factory system first 
 
264 STATE CONTROL OF INDUSTRIES 
 
 started has ever had a better opportunity 
 nor fewer obstacles to encounter in solving 
 our industrial problems than the present 
 one. Can the Coalition members and their 
 successors rise to the occasion ? And will 
 they? 
 
The. 
 
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 PSYCHOLOGY OF THE WORKSHOP 
 C^IA 4-W 
 
 CI^GX 
 ill fce<gi\AtA 
 
CHAPTER XVII 
 
 (February 1st, 1917) 
 
 PSYCHOLOGY OF THE WORKSHOP 
 
 WHEN the late Frederick Taylor of Phila- 
 delphia was deep in his study of workshop 
 efficiency, he occasionally favoured me 
 with the results of his labours. He men- 
 tioned the tons of metal he had used in 
 ascertaining the conditions under which 
 the highest speed efficiency was obtainable 
 with various machines, lathes, drilling, 
 slotting and screw cutting machines, etc. 
 He worked out the speed efficiency for 
 every form and variety of workshop tool 
 and machine, including labour itself. From 
 the purely mechanical standpoint Taylor's 
 work is the last word in efficiency. In one 
 of our numerous conversations, I asked if 
 he had given any consideration to the 
 psychology of the labour factor. He ad- 
 mitted that up to that time sixteen years 
 
 267 
 
268 PSYCHOLOGY OF THE WORKSHOP 
 
 ago he had not. He acknowledged that 
 great variations in the quality of labour 
 existed, but his endeavour was to eliminate 
 as far as possible the personal equation. 
 
 Taylor's work was entirely confined to 
 the material side. Increased output, re- 
 duced costs, greater profits these were 
 the sole objective results he aimed at 
 and attained to an extraordinarily high 
 degree. It is a curious commentary on 
 the human mind to witness how often in 
 our pursuit of certain objects the means 
 for securing them are regarded as the 
 objects themselves. Workshop efficiency 
 should be merely a means for providing us 
 with those material things necessary to 
 life, its development and enjoyment, with 
 the least expenditure of energy. But sup- 
 posing this pursuit ends in debasing the 
 human factors into mere pieces of me- 
 chanism ? Supposing our mechanical effi- 
 ciency turns out to be a Frankenstein ? 
 Supposing efficiency ends in crushing the 
 very object for whose advantage it is 
 created ? 
 
 One of the many salutary lessons taught 
 
PSYCHOLOGY OF THE WORKSHOP 269 
 
 by the war is the need for improving the 
 conditions of labour. The introduction of 
 female labour into thousands of workshops, 
 and the acquaintance which many of our 
 educated classes have made with factory 
 conditions, have led to a demand for 
 " humanizing " labour conditions. Prob- 
 ably the most debasing feature of these 
 conditions is the terrible monotony of 
 repetition work. A man who performs 
 the same operation, the making of the same 
 article day after day, week after week, and 
 month after month, becomes a mere auto- 
 maton. Not only does it affect him during 
 the hours of labour, but eventually he 
 becomes machine-like in all his movements, 
 with disastrous results to his mental and 
 moral stamina. 
 
 The great labour problem is how to 
 make workshop life attractive, interesting, 
 ennobling. The solution of this problem 
 will not only prove of great moral and 
 physical benefit, but economically advantage- 
 ous. The operator who is interested in 
 his work, will do more and better work 
 than the one who is " fed up " with the 
 
270 PSYCHOLOGY OF THE WORKSHOP 
 
 monotony of his daily task. Moral is as 
 important a factor in the workship as in the 
 army. The knowledge that their product 
 is to be one of the deciding factors in 
 winning the war has braced thousands of 
 machinists to do their level best, and 
 to-day many engineering establishments 
 are turning out better and more work per 
 man than at any period in their history. 
 
 I am now speaking from experience. I 
 have several men employed on munition 
 work, whose weekly output is one-third 
 more than the maximum quantity which 
 the makers of the machines believed it 
 was possible to produce ! Employees who, 
 prior to the war, grumbled when requested 
 to work overtime, now willingly put in an 
 average of twelve hours a day. And this 
 is not entirely due to the extra wages paid 
 them. It is the same spirit that caused 
 hundreds of thousands of all classes to 
 rush to their nearest recruiting station as 
 soon as war was declared. Is it not 
 possible to cultivate this spirit and organize 
 it for the production of the munitions of 
 life when peace is declared ? Such a 
 
PSYCHOLOGY OF THE WORKSHOP 271 
 
 result would absolutely revolutionize in- 
 dustrial life. 
 
 One method for rendering the operator's 
 task less monotonous is to explain fully 
 to him the functions fulfilled by each 
 particular article he makes. In my young 
 days of apprenticeship I remember how 
 dull and stupid certain repetition work 
 appeared. To make the first few screws 
 was interesting, but after several days 
 the same task became monotonous. One 
 day my father took me to Strood, and we 
 boarded the Great Eastern steamship 
 then the greatest and most famous vessel 
 afloat. I was there shown the purpose of 
 the screws I was making, which were to 
 be used on the vessel. From that time 
 the work assumed a totally different aspect. 
 The thought that my product was of 
 some importance in connexion with the 
 greatest ocean Leviathan, dispersed all 
 feelings of monotony, and I felt myself of 
 really some importance in the industrial 
 world. During thirty years of business 
 experience I have found that this practice 
 of explaining the use of the articles the 
 
 T.P. T 
 
272 PSYCHOLOGY OF THE WORKSHOP 
 
 machinist is engaged in making greatly 
 adds to his interest. 
 
 During a recent visit to the Whitehead 
 aircraft works at Richmond, Surrey, Mr. 
 Whitehead told me that he made it a rule 
 to call his workpeople together two or 
 three times a week during working hours, 
 and address them on the nature and 
 importance of their work. When flying 
 tests and experiments are carried out, 
 occasionally he invites the entire works to 
 risit them. " By these and similar means 
 the interest of every employee is maintained 
 at the highest level," he added. " Every 
 one works with the same diligence and 
 zeal as if the business belonged to him or 
 her." 
 
 The key to success will be found in satisfy- 
 ing the natural longing and hope of every 
 one to be of some recognized value in the 
 world. The great incentive which causes 
 men joyfully to spend days and nights in 
 working out inventions, in making discov- 
 eries, in writing books, is not the mere 
 hope of pecuniary gain, but the determina- 
 tion to obtain recognition among their 
 
PSYCHOLOGY OF THE WORKSHOP 273 
 
 fellows as having done " their bit " in life. 
 Indeed, the way to lighten toil and human- 
 ize labour conditions is to adopt such 
 means as will engender the spirit of a 
 victorious army, where every man shares 
 the glory of success. There is the excellent 
 story of the organ-blower who, when the 
 organist was bowing profusely in acknow- 
 ledgment of the plaudits of his audience 
 after a famous recital, insisted on sharing 
 the honours by standing beside the per- 
 former and making his bows. For had he 
 not also contributed his share to the 
 performance ? 
 
 DISTINCTIONS FOB INDUSTRY 
 
 The entire industrial spirit would be 
 changed completely if every factory em- 
 ployee from the humblest labourer to the 
 manager was made to feel that each is an 
 important and necessary link in the chain 
 of production. Accompanying this should 
 be a system of badging for good conduct 
 and special achievement. The Ministry 
 of Munitions did a wise thing when it 
 adopted the badge system. It gave a 
 
274 PSYCHOLOGY OF THE WORKSHOP 
 
 tone and standing to those so badged which 
 has done not a Mttle in stimulating output. 
 
 Soon after the beginning of the war, 
 when my works received its first contract 
 for munitions, nothing was said at first 
 to the operators as to their being employed 
 on munition work. There was a tendency 
 on the part of several to dawdle. As soon 
 as it was explained that rapidity of output 
 meant the saving of men's lives at the 
 front, all signs of malingering disappeared. 
 There are innumerable opportunities for 
 the display of heroism in the workshop as 
 well as on the field of battle. Could not 
 the Government extend the distinguished 
 service orders to include every department 
 of life, and give munition workers an 
 equal chance with the soldier for gaining 
 the equivalent of the V.C. or the D.C.M. ? 
 
 Another method for alleviating the natu- 
 ral feeling of monotony is to transfer 
 operators from time to time by putting 
 them on different operations. My experi- 
 ence proves that the mechanic who is 
 generally skilled that is, skilled in several 
 operations is usually better in each than 
 
PSYCHOLOGY OF THE WORKSHOP 275 
 
 the mere specialist. Change of occupation 
 periodically is beneficial to both the em- 
 ployer and employee. In large works 
 where gymnasia, cricket grounds, lawn 
 tennis courts, and even libraries are pro- 
 vided, occasional breaks in the working 
 hours to enable employees to enjoy a few 
 minutes' recreation, will be found of im- 
 mense value. 
 
 The excessive use of stimulants, spirits, 
 beer, and tobacco amongst the working 
 classes may often be traced to the desire 
 to get rid of the monotony of existence. 
 Temperance advocates, as a rule, fail to 
 get to the root of the evils of intemperance. 
 They blame the people who manufacture 
 the intoxicants and sell them, as well as 
 the Government that permits the traffic. 
 But they do not seem to realize that the 
 existence of the evil arises from the per- 
 sistence of the demand, for which some 
 good reason exists. To get rid of drunken- 
 ness we must first ascertain its cause by 
 studying the motives and conditions of 
 those who insist upon getting drunk. Whilst 
 intemperance may often be due to mere habit, 
 
276 PSYCHOLOGY OF THE WORKSHOP 
 
 or hereditary desires, I believe a vast 
 amount, especially among the working 
 classes, is directly due to the desire to 
 escape for a time from the dreariness and 
 the monotony of their lives. And the 
 surest cure is to find some healthy means of 
 making their lives bright and interesting. 
 
 Two modern inventions provide a method 
 for assisting in this task. The enormous 
 success which has attended the cinema 
 and the gramophone prove the public 
 appreciation of the need for these diversions. 
 If the Ministry of Munitions could have 
 employed 200 or 300 lecturers provided 
 with films giving views from the battle- 
 fields, taken on all the various fronts, 
 etc., to visit the various engineering works, 
 and exhibit them to the munition workers 
 accompanied by appropriate descriptions 
 of what our men were doing and the part 
 played by munitions it would have done 
 much to increase output. The psycholo- 
 gical effect of music is known too well to 
 require more than a passing reference. 
 Gramophones in factories might afford as 
 powerful a stimulus to labour as a military 
 
PSYCHOLOGY OP THE WORKSHOP 27? 
 
 brass band gives to an army marching to 
 battle. 
 
 The greatest factor in maintaining the 
 moral of factories, however, will be found 
 in the personal relations existing between 
 the masters and their men, between the 
 managers and foremen and those under 
 them. An American friend, employing 
 over 700 people, requires but one overseer. 
 The relations of himself and his manager 
 to his people are of such a nature that his 
 employees never require watching. They 
 are so satisfied with their treatment that 
 their one fear is lest they should get dis- 
 charged. Naturally there are scores of 
 people, like the Huns, who are insensible 
 to kind treatment to whom a kick or an 
 oath is more effective than advice. Such 
 people are either half-human or seldom 
 worth employing at any price. But to 
 the average Briton, a kind word is every- 
 thing, whilst an unjust act or a harsh 
 word stings like a scorpion, and seriously 
 reduces his efficiency as a producer. I 
 have often marvelled at the utter stupidity 
 of many managers who imagine kindness 
 
278 PSYCHOLOGY OF THE WORKSHOP 
 
 Or sympathy displayed to a workman to 
 be a sign of weakness, and tends to spoil 
 him. I have known workmen rendered 
 incapable of work for several days by 
 some censure given them in brutal terms. 
 I have always regarded such conduct as 
 stupid as a man venting his rage upon a 
 machine by striking it with a sledge ham- 
 mer ! The human being is the most deli- 
 cate, the most sensitive machine, and 
 needs the most intelligent treatment. 
 
 The psychology of the factory is a 
 comparatively new study, but it presents 
 a most fruitful field for experiment and 
 investigation. Remarkable as the results 
 of recent mechanical efficiency methods 
 have proved, far greater economic results 
 remain to be achieved in the domain of 
 psychology in knowing the conditions un- 
 der which the human factor is capable of 
 the highest achievements. / venture to say 
 that the highest degree of efficiency will be 
 found where labour conditions are the most 
 healthful, and the welfare and happiness of 
 the workers is the chief consideration. Some 
 day the world's statesmen will awaken to 
 
PSYCHOLOGY OF THE WORKSHOP 27d 
 
 the fact that any economic system which 
 breeds poverty and misery among the 
 masses is neither moral nor economic, 
 and that the surest plan for making a 
 nation rich and prosperous, is to ensure 
 first the well-being of the working classes. 
 The true science of economics must har- 
 monize with the laws of ethics. 
 
 W WAS 0* 
 
 c? f 4^ v^lem >fe? 
 
 i\A 
 
INDEX 
 
 Agencies German trade methods, 180 
 American securities, sale of, 31 
 Avebury, Lord, 80 
 
 Bagehot, Walter, 63, 64, 66 
 
 Balfour of Burleigh, Lord, 236 
 
 Bank Charter Act, 33, 67, 70, 136, 145, 159, 16T 
 
 Bank of England, 66, 67 
 
 Gold holding of, 117 
 Bank of France, rate in 1870, 71 
 Banking : 
 
 Amalgamation of banks, 151 
 
 Bank Rate fluctuations, 37, 68, 71, 80, 81 
 
 British and German systems compared, 49, 100* 
 
 British system, criticism of, 61, 141 et seq. 
 
 Clearing Houses, nationalization of, 153 
 
 Currency, banking interests in, 25 
 
 Free competitive banking, 149, 152 
 
 German banking system, 35, 45, 133, 176 
 
 London Gold Market, 36, 75 et seq., 82, 83, 116* 
 
 Monopoly of, 127 
 
 Mutual banking, 149 
 
 Nationalization of, 34, 56, 148 et seq. 
 
 Provincial banks, absorption of, 123 
 Bernhardi, 61 
 Besant, Walter, 62 
 Bismarck, Otto von, 229 
 Bleichroeder, 229 
 
 Bulgaria's alliance with Germany, 6 
 
 281 
 
282 INDEX 
 
 Business patriotism, 55 
 
 Capital v. Labour, 207 et seq. 
 
 Chancellor of Exchequer, open letter to, 33 
 
 Cinema films to influence public opinion, 13, 276 
 
 Clearing Houses, nationalization of, 153 
 
 Cobden, Richard, 42, 228, 241 
 
 Coinage, metric system advocated, 191 et seq. 
 
 Combines and Trusts, 242 
 
 Consular Service, reform of, 47 
 
 Controlled firms, conditions imposed upon, 253 et seq. 
 
 Country banks and bankers, 125 et seq. 
 
 Credit of Great Britain, value of, 107 
 
 Daily News article on Banking, 62 
 Daylight Saving Act, 190 
 Defence of the Realm Act, 252 
 Dyeing Industry, German monopoly, 54 
 
 Economic Conference, Paris, 1916, 235, 241, 248 
 Economics failure to solve industrial problems, 
 
 199 et seq. 
 Education Acts, 221 
 Employers' Liability Act, 221 
 
 Factory Acts, 221 
 Financial factor in war, 17 et seq. 
 Foreign loans and investments, 27 
 Free gold market, effect of, 76, 82, 83 
 Free Trade and Protection, coming economic war, 233 
 et seq. 
 
 German Trade : 
 Capture of, 41, 110, 115, 192 
 Dyeing, monopoly of, 54 
 Methods, 44, 175 et seq., 238 
 Organization of, 226 
 Trusts and Combines, 243 
 
INDEX 285 
 
 Germany : 
 
 Banking operations of, 35, 45, 133, 176 
 Bulgarian support, 6 
 
 Government Departments, purchases by, 51 
 Neutral countries' belief in German cause, 5 
 Psychological factor, employment in war, 8 
 Turkey's alliance with, 6 
 
 Gladstone, W. E., 33, 36 
 
 Glass industry, discovery of heat-resisting glass, 53 
 
 Gold as legal tender, value of, 24 
 
 Gold Reserves : 
 
 Amount available before war, 69 
 Fallacy of, 21, 69, 89, 91, 110, 111, 118, 143, 149 
 Finance, effect of gold standard upon, 19 et seq, 
 German and British systems compared, 134 
 London Free Gold Market, 75, 82, 83, 116 
 Treasury notes, gold reserves for issue of, 166 
 
 Goschen, Lord, 33, 64, 92, 190 
 
 " Gresham Law," 94, 95 
 
 Gresham, Sir Thomas, 97 
 
 Grey, Viscount, 9 
 
 Harrison, Frederick, 64 
 
 Hobhouse, Emily, 239 
 
 Hobson, John A., 206, 238 
 
 Holden, Sir Edward, 63, 98, 112, 116, 118, 145 
 
 Holland's neutrality, 6 
 
 " Inconvertible " notes, 68 
 
 Inventions and discoveries, German subsidies for, 55 
 
 Industrial banking system, 144 
 
 Jevons, Stanley, 200, 202 
 Kropotkin, Prince, 125 
 
 Labour : 
 
 Capital v. Labour, 207 et seq. 
 
284 INDEX 
 
 Labour continued : 
 
 Change of occupation, value of, 274 
 
 Controlled firms, conditions in, 255, 259, 260 
 
 Distinctions in industry, 273 
 
 Wages under Protection, 262 
 
 Welfare Department, 260 
 
 Women's labour, increase of, 269 
 
 Workshop psychology, 267 
 Labour Party, rise of, 217 
 Laissez-faire policy, 221, 222 
 Language schools, German secret subsidies to, 179 
 Lectures to influence public opinion, 13, 276 
 Lee, Arthur, 82 
 
 Legal Tender Acts, 67, 130, 132 
 Legal tender, value of gold as, 24 
 Loans : 
 
 Charges for, 144 
 
 Industrial, 144 
 
 Interest rates, 145 
 Lloyd George, David, 92, 253 
 London City and Midland Bank, 112, 117 
 London Free Gold Market, 36, 75 et seq., 82,83, 116 
 
 McDonald, Ramsay, 206 
 
 McKenna, Rt. Hon. Reginald, 109, 110 
 
 Martin, Percy F., 47 
 
 Metric system, adoption of, 191 et seq. 
 
 Mill, John Stuart, 18, 151, 217, 222 
 
 Monometallism, effect on finance, 21 
 
 Monopoly of banking, 127 
 
 Moratorium declared in 1914, 33, 160 
 
 Munitions, Ministry of, 28, 251, 253, 256, 260, 273 
 
 Napoleon, 20 
 
 National credit, use of, 146 et seq., 166 
 
 National debt, 29, 168, 170 
 
 Nationalization of banking, 34, 56, 148 et seq. 
 
 Neutral countries' indifference to Allied Cause, 5 
 
INDEX 285 
 
 Newspapers : 
 
 Germany's propaganda in neutral countries, 9 
 
 Publication, Ministry of, 12 
 Newton, Sir Isaac, 97 
 Nigeria, sale of enemy lands in, 236 
 " Norman Angellism," 205 
 
 Paper money, issue of, 20, 146, 147, 160 
 
 Paris Economic Conference, 1916, 235, 241, 248 
 
 Patents, infringement by German firms, 185 
 
 Peel, Sir Robert, 33, 36, 65, 66, 146 
 
 Pensions Acts, 221 
 
 Pope Benedict XV, 6 
 
 Private provincial banks, absorption of, 123 
 
 Production and Exchange, supreme factors in war, 22 
 
 Property, State ownership of, 225, 226 
 
 Protection : 
 
 Free Trade and Protection, coming economic war, 
 233 et seq. 
 
 Wages under, 262 
 Proudhon, P. J., 204, 223 
 Psychology : 
 
 British, 157 
 
 Ministry of, suggested, 12 
 
 War, psychological factor in, 1 et seq 
 
 Workshop psychology, 267 
 
 Roberts, Lord, 65 
 
 Roumania, delay in declaring war against German/, 6 
 
 Rowntree, Seebohm, 260 
 
 Ruskin, John, 204 
 
 Salisbury, Marquis of, 64 
 Smith, Adam, 200, 204 
 Spain's neutrality, 6 
 Spencer, Herbert, 217, 222 
 Spies used in German trade, 177 
 
286 INDEX 
 
 State ownership and control : 
 
 Increase of, 218 
 
 Industrial, 211, 251 et seq. 
 
 Property, 225, 226 
 
 Trade organization under, 227 
 State Socialism, 219 
 Sweden, Pro-German feeling in, 6 
 Switzerland as a neutral, 6 
 
 Taxpayers, effect of " cheap pound " on, 171 
 Taylor, Frederick, 267 
 Trade : 
 
 Banking control of, 150 
 
 British methods, 46 
 
 Business patriotism, 55 
 
 Free Trade and Protection, coming economic war, 
 233 et seq. 
 
 German, see that title. 
 
 Industrial banks, 144 et seq. 
 
 International competition, 229 
 
 Mutual aid in, 256 
 
 Organization of, 226 
 
 Paris Conference, 1916, 235, 241, 248 
 
 Patents, infringement of, 185 
 
 State ownership, see that title. 
 Trades Union Acts, 221 
 Treasury notes, issue of, 160 et seq. 
 Trusts and Combines, 242 
 Turkey's alliance with Central Powers, 6 
 
 Union of Democratic Control, 206 
 
 United States of America, position as a neutral, 7 
 
 Wages under Protection, 262 
 
 War Loan, 1917, 168 
 
 Welfare Department of Ministry of Munitions, 260 
 
 Whitehead Aircraft' Works, 272 
 
 Withers, Hartley, 78, 85, 90, 92, 98 
 
 Women's labour in factories, increase of, 269 
 
 P. S KING & SON, Ltd., Orchard House. Wetinter. 
 
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